Bankers may have bonuses delayed for up to 10 years under new rules
(26 June 2015 – United Kingdom) New rules announced by the United Kingdom’s financial regulators could mean senior bankers may have to wait up to 10 years to receive their full bonuses.
The Prudential Regulation Authority and the Financial Conduct Authority are planning to introduce a seven-year clawback period for a wider array of bankers but may introduce an additional three-year delay for the most senior members of bank management teams.
Financial Conduct Authority chief executive Martin Wheatley said the rules are part of a wider package that is being announced over the summer to embed an accountable culture in the City.
“Our rules will now mean that senior managers face clawback of bonuses for up to 10 years, if misconduct comes to light.
"This is a crucial step to rebuild public trust in financial services, and allows firms and regulators to build long term decision making and effective risk management into people’s pay packets."
Andrew Bailey, deputy governor for Prudential Regulation, Bank of England and chief executive of the Prudential Regulation Authority said: "Effective financial regulation involves creating appropriate incentives to encourage individuals to take greater responsibility for their actions.
“Our intention is that people in positions of responsibility are rewarded for behaviour which fosters a culture of effective risk management and thus promotes the safety and soundness of individual institutions."
Shareholders, politicians and customers have been angered by the inability to financially punish those executives that were thought to have landed their firms in trouble during the credit crunch or subsequent scandals like PPI mis-selling.
The latest move is part of an array of changes to the rules designed to increase accountability.
Other examples include the threat of jail for traders who manipulate market benchmarks such as Libor, and the possibility of criminal sanctions for bosses who behave recklessly before a bank crashes.
Under the new rules, most senior bankers will face a deferral period of seven years on their bonuses.
This means that the money is held by the bank for the first three years before being paid out in chunks of up to 25 percent a year over the following four years.
If the banker misbehaves during that period - even in an area unrelated to that for which the bonus was awarded - the bonus can be reduced or scrapped altogether.
The regulators can extend the clawback period for another three years if an investigation into potential material failures at the bank has been launched.
More junior bankers will face shorter deferral periods - five years for managers with supervisory or managerial roles and three years for so-called "material risk-takers".
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