The City watchdog is preparing to water down pay rules for financial companies in a bid to make the Square Mile more internationally competitive.
The Financial Conduct Authority (FCA) is set to give businesses more flexibility in how they pay their employees as part of efforts to boost the City of London.
It comes amid fears that London is falling behind rival financial hubs, with Barclays this week announcing plans to hire 200 staff in Paris.
The regulator, led by Nikhil Rathi, is consulting on reforms to its remuneration rules that would make it easier for smaller financial companies to be exempt from stringent pay regulations.
The proposed changes will mean that companies with total assets below £4bn will no longer be forced to comply with performance adjustment remuneration rules known as “malus and clawback”.
Malus and clawback rules are intended 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 firms that fall below the £4bn asset threshold and are regulated by both the FCA and Bank of England’s Prudential Regulation Authority (PRA).
In the consultation paper, the FCA said the reforms will create “a more proportionate regime for smaller, less complex” companies and will make the UK more attractive for new entrants to the market.
Companies with assets between £4bn and £20bn will also be able to disregard certain remuneration rules on grounds of proportionality.
Leading City figures have warned that Britain is being held back by a campaign against high pay.
Julia Hoggett, chief executive of the London Stock Exchange, said: “We should be encouraging and supporting UK companies to compete for talent on a global basis, so we remain an attractive place for companies to base themselves, stay and grow.
“The alternative is we continue standing idly by as our biggest exports become skills, talent, tax revenue and the companies that generate it.”
Pay levels in the City have become a growing area of concern as shareholder advice groups increasingly take a hard line on issues.
Ms Hoggett said a pay disparity between UK chief executives versus their US counterparts had “not received enough attention” and called for a level playing field to stem an exodus of companies from the Square Mile.
The FCA said its proposed changes could “improve the ability for firms to attract and retain highly qualified individuals.”
It also comes as the FCA prepares to be given a secondary objective to promote international competitiveness as part of the Government’s “Big Bang 2.0” drive in the Square Mile.