7-year window for clawing back banker bonuses introduced

The new approval regime focuses on the most senior individuals whose behaviour and decisions have the potential to bring a bank to failure, or to cause serious harm to customers and introduces new rules on remuneration to strengthen the alignment between long-term risk and reward in the banking sector.

One of the consultation papers introduces new regimes which will allow regulators to hold senior individuals within a bank to account and ensure banks regularly vet these individuals for fitness and propriety.

The new PRA and FCA proposals for remuneration include requiring firms to defer payment of bonuses for a minimum of five or seven years, as well as giving firms greater powers to recover bonuses - even if they have already been paid - if risk management or conduct failings come to light at a later date.

The PRA has also today published final rules on clawback which introduce a seven-year minimum period for clawback from the date of award. These rules will come into force on 1 January 2015.

Andrew Bailey, Deputy Governor, Prudential Regulation and Chief Executive Officer of the PRA said:

“Holding individuals to account is a key component of our job as regulators of banks. The combination of clearer individual responsibilities and enhanced risk management incentives will encourage individuals in banks to take greater responsibility for their actions. We believe that enhancing individual accountability and improving the alignment of risk and reward should have a positive impact on behaviour and culture within banks and will help to ensure that they are managed in a way that promotes the safety and soundness of individual institutions."

Martin Wheatley, Chief Executive of the FCA said:

“How a firm conducts its business and treats its customers must be at the heart of how it operates. This has to start at the top. Today’s consultations mark a fundamental change in the regulators’ ability to hold individuals to account, which is what the public expects of us. It will also build on the cultural change we are beginning to see in the boardrooms of firms across the country.”