After the government had to rescue lenders in the during financial crisis, policymakers want to make it harder for bankers to escape financially if misconduct is uncovered years later.
“As promised by the government, the UK now has the toughest bank pay rules in the world,” said Jon Terry, a pay expert at consultancy PwC.
The PRA has made it clear that people in positions of responsibility will be rewarded for behaviour which fosters a culture of effective risk-management.
This is a crucial step to rebuilding public trust in financial services, said FCA CEO Mark Wheatley, and allows firms and regulators to build long-term decision-making and effective risk management into banker’s pay packets. He added that the rules were part of a wider campaign to “embed an accountable culture in the City”.
The two authorities’ proposals will give the UK one of the most stringent regimes governing bonuses and pay.
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It will also involve pushing up the clawback period for all employees and employers who take “material risks”. For CEOs and chairmen, a bonus could be clawed back for up to ten years, while senior managers face a seven-year clawback period, dropping to five years for more junior staff.
Other key proposals included banning bonuses for non-executive directors of banks, and also for the senior managers of any lender that has taxpayer support.
Terry noted, however, that the biggest concern for banks headquartered in the UK is the uneven playing field that now exists between the UK and the rest of the EU, adding to the existing differences between the EU and the rest of the world.
British banks will have to pay a premium to attract senior executives from outside the country with more in the form of fixed pay, he said.
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