thursday, 31 july of 2014


Banker bonuses can be clawed back for up to seven years - Bank of England

Bankers who break rules on their conduct may have to hand back bonuses up to seven years after being awarded them, the Bank of England said on Wednesday as it unveiled some of the world's toughest curbs on the sector.

The measures are the latest response to multi-billion pound taxpayer bailouts of lenders such as Royal Bank of Scotland and Lloyds in the financial crisis of 2008 and 2009, with few individual bankers subsequently punished for reckless behaviour.

Hefty bonuses still being paid to bankers at a time of belt-tightening for most people have also prompted public anger over the issue and lawmakers have responded with calls for curbs on the sector.

The Bank of England had proposed in a consultation paper in March there could be clawback of bonuses up to six years from the date they were fully paid out but has now extended that timescale.

Britain's latest tightening of the screw on the financial industry also comes as bad behaviour is still being uncovered, with leading banks already fined for manipulating benchmark interest rates and braced for further possible fines after allegations of rigging foreign currency rates.

Earlier this week Lloyds was fined $370 million for rigging benchmark lending rates.

The new clawback rule will come into force next year and will apply to bonuses made on or after January 1, the Bank said.

Bonuses are typically paid out over three to five years and can already be clawed back during this time, but the new rule goes further to allow the clawing back of an award after it has been received.

Other rules already introduced on bonuses, regarded as having helped encourage risky activities by errant bankers, include a European Union 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.

Deferred portion

The Bank also said it is proposing that the deferred portion of a bonus should be paid over at least five or seven years, depending on seniority.

John Cridland, director-general of the Confederation of British Industry (CBI) business lobby group, said pay deferral and clawback would help keep conduct in check, though he noted: "But 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."

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 Financial Conduct Authority (FCA) also on weds published a joint consultation on making 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 something goes wrong.

In addition, the two regulators proposed making bankers wait longer to receive all their bonus. Currently a bonus is paid over three to five years and the regulators want a longer time period of five to seven years.

"Today's consultations mark a fundamental change in the regulators' ability to hold individuals to account, which is what the public expects of us," FCA Chief Executive Martin Wheatley said in a statement.

(Published by Reuters - July 31, 2014)

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