The Financial Conduct Authority and Prudential Regulation Authority plan to increase the clawback period for bankers’ bonuses to up to 10 years and extend the deferral of remuneration by a minimum seven years for senior managers.
New banking rules coming in next January extend the current clawback period to seven years from the date of award, but the regulators have proposed that firms are allowed to extend this to 10 years for senior managers if it has launched its own internal inquiry into a potential material failure.
Firms are currently required to defer at least 40% of awards for ‘material risk takers’ (MRTs) amd at least 60% of awards for directors and other high earners with total variable remuneration of £500,000 or more for three to five years on a pro rata basis.
Under the new proposals, this would be extended to seven years for senior managers and five years for all other MRTs.
The consultations follow the Parliamentary Commission for Banking Standards report ‘Changing Banking for Good’, last June, which set out legislative changes to improve professional standards, which were incorporated in the Banking Reform Act 2013.
Nicholas Stretch, a partner at law firm CMS, said: 'These proposals are tougher than the industry would have liked but there was a general resignation that they would be implemented, whatever the costs and technical difficulties - and however far it puts the UK outside international norm.
'At least banks will not have to face amending remuneration which has already been awarded, as the proposals only affect bonuses awarded from January 2015. That would have posed all sorts of contractual issues which have now been avoided.'