- BoE can claw back bonuses 7yrs after award
- New proposals to hold individuals to account
- 'Toughest banking rules in the world'
The Bank of England (BoE) has finalised rules on bankers bonuses that could see the clawback of awards a maximum of seven years after they are awarded, with the new measures to into force on January 1st next year.
Original proposals set out by the BoE's Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) in March had indicated a six-year clawback from when the bonus was vested, or paid, with expectations of a maximum of longer than seven years.
Interestingly, the new measures will be applied to London subsidiaries of foreign banks, but not branches.
The PRA has also announced significant new proposals on Wednesday to make it easier for firms and regulators to hold individuals to account and to require banks to defer payment of bonuses for senior staff for a minimum of five or seven years.
One aim of the new proposals is to ensure bankers caught up in misconduct could be held directly responsible for their own actions.
A new consultation paper includes proposals for a new regime for senior bankers to prevent them potentially evading responsibility, further power for regulators to hold senior individuals to account, and requirements for firms to regularly vet senior staff for fitness and propriety.
Altogether the new measures "will be some of the toughest rules in the financial sector anywhere in the world", according to Linklaters employment lawyer Jean Lovett.
But BoE Deputy Governor Andrew Bailey, also Chief Executive Officer of the PRA, said holding individuals to account was a key component of the banking regulator and was hoping it would positive impact on behaviour and culture within banks.
"The combination of clearer individual responsibilities and enhanced risk management incentives will encourage individuals in banks to take greater responsibility for their actions."
The finalised clawback rules will allow the BoE force banks to recover bonuses where there had been "reasonable evidence of employee misbehaviour or material error" or when "the firm or the relevant business unit suffers a material failure of risk management".
Under current BoE powers firms can be prevented from paying unvested bonuses, called 'malus'; but the new proposals represent a further strengthening of the remuneration code.
Martin Wheatley, Chief Executive of the FCA, said: "How a firm conducts its business and treats its customers must be at the heart of how it operates. This has to start at the top."
The CBI cautioned that, while the pay deferral and clawback should help keep conduct in check, they might damage the UK banking industry.
John Cridland, CBI Director-General, said: "As these new rules are amongst toughest in world, we need to be careful we don't create uncertainty which might make it increasingly hard to attract talent to London.
"The Government needs to work hard to ensure the UK remains competitive as a leading global financial centre."