UK regulators set to remove cap on banker bonuses

(Sharecast News) - The Prudential Regulation Authority (PRA) has removed a limit on bonuses in the banking sector after finding that pay and "allowances" have been creeping up over the past decade. Banks have long-complained that the bonus cap, which limited bonuses to double the amount of fixed salaries, is preventing them from securing the best senior banking talent from overseas.

The PRA said they had discovered "undesired consequences" of the bonus cap, which has been in place since 2014 such as "raising fixed salaries and allowances".

According to Financial News, citing conversations with senior bankers, banks have circumvented limits on pay by offering "role-based allowances" on top of salaries which typically amount to 30-40% of monthly income.

The PRA said that removing the cap would "advance integrity and competition objectives".

"Having the flexibility to restructure pay faster should allow for a greater proportion of total pay to be subject to incentive setting tools within the remuneration framework sooner, which in turn could contribute to a better alignment of incentives and financial rewards with principles of effective risk management, good conduct, and the long-term interests of the firms," the PRA said in a statement.

"This is likely to foster better market conduct and prudent risk management, thereby discouraging behaviours that can lead to misconduct and poor customer outcomes, and improving the safety and soundness of dual-regulated firms and the wider financial system."

The bonus cap will officially be abolished on 31 October.