Financial News

  • 14 March 2014, 11:10

Bankers Face Six-Year Bonus Clawback Rule

Bank bonuses would be able to be clawed back up to six years after they were paid under plans to tackle the excessive risk-taking blamed for the financial crisis.

The proposal, which the Bank of England has put out to consultation, was announced as the industry continues to get to grips with pending new EU rules on limiting bonuses.

The payments remain the focus of public anger following the taxpayer bailouts of Lloyds and Royal Bank of Scotland (RBS), while Barclays, which got no public money, is facing the prospect of a pay revolt in April after it proposed a rise in bonuses for 2013 despite profits sliding.

Since the near-collapse of the banking system in 2008, customers of all major UK banks have struggled to secure loans amid a recession which hit jobs, pay and investment.

The industry has also come under fire over a series of mis-selling scandals and faced fines for rate-rigging.

The Bank's intervention marks a toughening of current rules that allow only for the cancellation or reduction of parts of bonuses that have been awarded but not yet paid.

Any new retrospective clawback rule will make it necessary for employers to rewrite staff contracts to ensure money can still be repaid even if they no longer work at the bank.

The proposal was announced by the Bank of England's deputy governor Andrew Bailey, who also heads the Prudential Regulation Authority which oversees the UK banking sector.

"The policy we are consulting on will ensure bonuses can be clawed back from individuals, where they have already been paid, if it becomes apparent they have put the stability of their firms at risk or engaged in inappropriate actions," he said in a statement.

"This will provide a clear message to individuals of what is expected from them and the consequences of not acting properly."

The Bank said the rule, which is due to come into effect in 2015, would also potentially apply to those supervising the conduct of individuals.

The Government is known to view the ability to claw back bonuses as a better method for dampening excessive risk-taking than the new EU cap, which will affect payments made from early next year.

The regulation, imposed by Brussels and which Britain is challenging in the courts, would limit a bonus at no more than fixed salary, or twice that amount with shareholder approval.

The British Bankers' Association, which represents the banking industry, said it supported the Bank of England's plans but raised concerns over how recouping cash would work in practice.

 

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