Changes to pay rules go further than original proposals set out last year, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) said.
The amount of time that bankers must wait before receiving the full amount of their bonus – known as the bonus deferral period – will be cut in half from eight years to four years.
Previous proposals had suggested that the referral period was reduced to five years for top bankers, and four for less senior staff.
Most senior bankers will also be allowed to receive a part-payment of bonuses from the first year they are awarded under the new rules, rather than having to wait until the third year.
The rules are set to come into force on October 16, in time for 2025 pay awards and those not yet fully paid.
Deferrals happen when bonuses for staff are paid out in future, rather than immediately, meaning they can be cancelled if the performance of the business changes.
Shortening the deferral period means people can access the cash faster.
The regulators said this change would make the UK a more attractive place to work, because bankers currently have to wait longer to get their bonuses than in some other countries.
“These new rules will cut red tape without encouraging the reckless pay structures that contributed to the 2008 financial crisis,” Sam Woods, the PRA’s chief executive said.
“These changes are the latest example of our commitment to boosting UK competitiveness.”
Sarah Pritchard, deputy chief executive of the FCA, said: “The new rules also mean senior managers will continue to follow our high standards and remain on the hook where poor decisions affect consumers and markets.”
The regulators believe that banking firms will still have enough time to spot if a staff member has made poor decisions or if their financial performance worsens, allowing them to reduce bonuses before they are paid.
It is also expected to help bring down base salaries which often are pushed higher to compensate for red tape on bonuses.
Regulators have taking steps to relax rules in the City since Brexit, which meant the UK no longer had to follow EU guidelines.
