LONDON: Senior UK bankers will have to wait seven years to collect their annual bonus payments in full under tough new rules released .
Three years must pass from the time of an award to receive any pay out, and top bank executives will have a 10-year wait to be sure the bonus won’t be clawed back. Risk managers will wait five years to receive any performance awards in full, while traders and other “risk takers” will have at least a three-year wait.
The rules tighten the clamp on a pay system that is already one of the most heavily controlled in the world, with tens of thousands of UK bank workers subject to a mix of British and European Union rules over their compensation.
While annual bonuses for many bank workers already must be paid in a mix of cash and shares and can’t be more than 100 percent of salary, Tuesday’s announcement also explicitly bans any bonuses for management at a bailed-out bank and for nonexecutive directors of any bank.
The Financial Conduct Authority said the rules are needed to prevent the excessive risk-taking and poor conduct that led to the financial crisis of 2008 and scandals, including traders’ attempted manipulation of global interest rate benchmarks. It jointly conceived the rules with the Bank of England’s Prudential Regulation Authority.
Banks have pledged to clean up their culture and train their staff better in recent years, but new scandals, such as wrongdoing in foreign exchange markets, have continued to emerge.
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,” said FCA Chief Executive Martin Wheatley.
He said senior managers could have to return their bonuses if misconduct comes to light within 10 years, while other staff will be subject to a seven-year claw back period.
The reforms the government has put in place since 2010 mean that Britain now has the toughest rules on bankers’ pay of any major financial center,” a Treasury spokesman said.
Lawyers say the rules, most of which take effect in January, are the toughest in the world and that earlier versions have already resulted in some global bank executives choosing other jobs or locations over a London posting. The Financial Stability Board has issued guidelines around bonus deferral and claw back, but most countries haven’t made them mandatory.
The FCA and PRA stopped short on Tuesday of banning banks of compensating new joiners with shares or cash they were due to receive from their former employer. After reviewing responses to the proposal made last year, the regulators said they would explore the possibility of requiring the so-called buyout awards to be in a form where they could still be clawed back.
Andrey Bailey, CEO at the Prudential Regulation Authority and a Bank of England deputy governor, said the intention of Tuesday’s rule tightening “is that people in positions of responsibility are rewarded for behavior which fosters a culture of effective risk management and thus promotes the safety and soundness of individual institutions.”
The clampdown on banker pay has been supported by the government and parts of it are enshrined in 2012 banking reforms. There is still widespread public resentment over bank bailouts in 2008 and 2009, in part because the government is still owed around ₤100 billion ($US158 billion) by banks it helped.
