Bank of England’s Deputy Governor, Sam Woods, has expressed concerns that the limitation on bonuses for bankers has had a negative impact on the growth of the UK economy. Woods stated that abolishing this cap has been acknowledged by major international banks around the world.
Speaking at an annual City event at London’s Mansion House, Woods emphasised that the Prudential Regulation Authority (PRA) is actively working to enhance the competitiveness of the UK’s financial sector and reduce bureaucracy. He highlighted the recent decision to remove the cap on bonus payouts for top City bankers, a move aimed at making the country more appealing to global firms and top talent from overseas.
According to Woods, the bonus cap was unnecessary for prudential purposes and actually counterproductive as it led to higher base salaries that were challenging to adjust in response to economic shocks. He noted that this regulation had a detrimental effect on competitiveness.
In addition to scrapping the bonus cap, Woods disclosed that the PRA is considering reducing the deferral period for senior managers’ bonuses from eight years to five years. Deferrals involve delaying the payment of bonuses to employees, contingent on future performance, and can be revoked if the business’s performance changes.
Woods affirmed that the PRA is striving to strike a balance between mitigating risks in the financial system and avoiding an excess of regulations that could hinder growth. He mentioned the need to declutter the existing bureaucratic regime to foster a more conducive environment for financial activities.
These statements from Woods coincide with the recent international investment summit conducted by the Government, where Sir Keir Starmer vowed to streamline regulations to facilitate investments in the UK. Starmer underlined the significance of economic growth and wealth creation for the country’s future stability.
Overall, Woods’ remarks underscore the importance of regulatory measures that contribute to the growth and competitiveness of the UK’s financial sector, while also ensuring a conducive environment for investment and talent attraction.