Britain unveils 7-year bonus clawback on errant bankers
Published 02/08/2014 | 00:00
Here in Ireland we've done nothing to change the bonus culture in banks beyond a few cosmetic temporary changes. In Britain, things are different. Miscreant bankers face having their bonuses clawed back for up to seven years after their award under measures set out this week.
The measures, some of the world's toughest on the financial sector, are the Bank of England's latest attempt to avoid a repeat of the multi-billion-pound taxpayer bailouts.
Despite the scale of the crisis, few bankers were punished for reckless behaviour and the sector's hefty bonuses remain a focus of public concern.
The new rules go beyond the Bank of England's proposal in a consultation paper in March for a clawback of bonuses up to six years from the date they were fully paid out.
Lawyers say enforcing clawbacks is untested in the UK courts if a banker refuses to pay up, and there are also questions over what happens to tax paid on a recovered bonus. "These proposals are tougher than the industry would have liked, but there was a general resignation that they would be implemented whatever the costs and technical difficulties and however far it puts the UK outside international norms," said Nicholas Stretch of law firm CMS.
A new seven-year clawback rule for all bankers will apply to bonuses made from the beginning of next year to all London-based staff of deposit-taking banks, EU banks and major non-EU banks such as Citi, Morgan Stanley, Goldman Sachs and Credit Suisse.
Bonuses are typically paid out over three to five years and can already be clawed back during this time, but the new rule allows the clawing back of an award after it has been received. Other rules already introduced on bonuses include an EU law limiting their value to twice the amount of fixed pay, subject to shareholder approval.
Britain has also already passed a law making reckless behaviour by bankers a criminal act punishable by up to seven years in prison and Wednesday's consultation spelled out which types of bank employees would be subject to this.
"We'll examine the detail of these new proposals with interest, but it is important that any new regulation does not put British banks at a disadvantage," said Anthony Brown, chief executive of the British Bankers' Association.
Probes into some misconduct, such as rigging of market interest rates, take several years, meaning bankers involved may have already been paid bonuses covering the time the rule-breaking took place.
The bank and the FCA also published plans to make top bankers directly accountable for their actions - known as the senior managers' regime - by signing a statement listing their specific responsibilities, making it easier for regulators to bring them to book if things go wrong.
Also proposed is a certification regime for employees whose activities could harm the bank or customers.