City pay rules to be relaxed to boost London's competitiveness

Mr. Rati is leading a campaign to free small businesses from wage rules. Credit: Holly Adams/Bloomberg

The proposed changes would mean that companies with total assets of less than £4bn would no longer be forced to comply with performance-based remuneration rules known as 'malus and clawback'.

Malus and Clawback rules are designed to manage risk by requiring bosses to reduce bonuses or order employees to repay previously paid bonuses in the event of poor performance or misconduct.

The reforms will apply to banks, building societies and investment companies whose assets do not exceed the £4 billion threshold and are regulated by both the FCA and the Prudential Regulation Authority (PRA) of the Bank of England.

The FCA consultation paper says that the reforms will create a «more proportionate treatment for smaller and less complex» companies and make the UK more attractive to new market entrants.

Companies with assets of £4bn and £20bn will also be able to ignore certain remuneration rules for reasons of proportionality.

Leading city officials have warned Britain is being held back by the campaign against high wages.

Julia Hoggett, chief executive of the London Stock Exchange, said: «We need to encourage and support UK companies to compete for talent on a global basis, so we remain an attractive place for companies to base, stay and grow.»

«The alternative is that we continue to sit idle while our biggest exports are skills, talent, tax revenue and the companies that generate it.»

Ms Hoggett of the London Stock Exchange: 'Without reform, Britain risks losing its skills and tax revenue' Credit: Eamonn M. McCormack/Getty Images Europe

Wages in the city are becoming a bigger issue as shareholder advisory groups increasingly take a hard line on issues.

Ms Hoggett said pay disparities between British executives and their American counterparts «haven't received enough attention» and called for a level playing field to stem the exodus of companies from the Square Mile.

Proposed FCA changes could «improve companies' ability to attract and retain high-quality talent.»
This also comes as the FCA is preparing to receive a secondary challenge to promote international competitiveness under the government's Big Bang 2.0 square mile program.

PRA has begun consultations on similar reforms to the rulebook in February.

Regulators are also consulting on lifting the cap on bankers' bonuses announced by former chancellor Kwasi Kwarteng in his ill-fated «mini-budget».

Sam Woods, head of the PRA, had previously opposed the cap, saying, «The only effect of the cap is to increase the bankers' fixed wages…it's a completely crazy system.»< /p>