LONDON: British banks will be able to claw back employee bonuses up to seven years later if the recipient is found guilty of serious recklessness, the Bank of England announced.
Bankers found guilty of “causing a bank to fail” can already be sentenced to prison and fined, but could now be forced to hand over their bonuses — even stocks that have already been cashed and spent.
Banks can currently defer payment of bonuses, which can be double bankers’ basic annual salary, for three to five years.
Under the new plans, they will also have the power to claw back cash that has been paid out.
The rules, amongst the toughest in the world, were finalized by the BoE’s Prudential Regulation Authority (PRA), which is also proposing further rules to allow the clawback period to be extended beyond seven years.
The move comes after a wave of rate-rigging scandals that have plagued the nation’s banks, and which took several years to be exposed and punished.
Banks have also faced a slew of new regulations after the onslaught of the global financial crisis revealed the scale of the recklessness in London’s financial center.
“Holding individuals to account is a key component of our job as regulators of banks,” said Andrew Bailey, the BoE’s deputy governor for prudential regulation.
“The combination of clearer individual responsibilities and enhanced risk management incentives will encourage individuals in banks to take greater responsibility for their actions,” he added.
Managers found guilty of taking a “reckless decision” that topples a financial institution can face criminal charges and up to seven years in prison under new rules announced recently.
The British Bankers’ Association hit out at the rules, saying they would weaken London’s position as a global financial center.
But the head of banking group Barclays, whose former chief executive Bob Diamond was forced to resign over the Libor scandal, welcomed the tougher rules.
“I believe that banks have to regulate themselves and that’s why culture is so important, so that banks do the right business in the right way,” said Barclays chief Antony Jenkins.
“I would say that in principle, I support the idea that where there is wrongdoing, there should be appropriate punishment.
“If that’s criminal wrongdoing, it should be criminal. If it’s recklessness, that should be punished also, so I’m not against the concept of clawback,” he added.
John Cridland, director-general of the CBI business lobby, warned that the rules may cause uncertainty, “which might make it increasingly hard to attract talent to London.”
High Street giant Lloyds Banking Group said on Monday it will pay £218 million in fines to British and US regulators, becoming the latest global lender to be fined for rigging inter-bank lending rates.
Lloyds’s settlement is the seventh joint penalty handed out by the US and Britain as part of a long-running probe into attempts to manipulate benchmarks that set rates for trillions of dollars of financial transactions.
UK bankers’ bonus: Tough rules on way
