The Bank of England has warned ‘misbehaving’ or irresponsible bankers that they may have to pay back their bonuses.
The Bank has announced that it will seek consultation on proposals that would allow authorities to repossess bonuses from individuals up to six years after they were paid out.
The idea has been put forward as a way of preventing bankers acting inappropriately and then switching jobs before their actions come to light.
Under current rules, bankers’ bonuses can only be cancelled or cut if they have not yet been paid out.
The so called ‘clawback’ rule would require all firms authorised by the Prudential Regulation Authority (PRA) to amend employment contracts to ensure bonus awards could be demanded back.
“We have an objective to ensure the safety and soundness of the firms we regulate and we won’t allow remuneration schemes to exist that encourage behaviour likely to jeopardise financial stability”, said Andrew Bailey, deputy governor of Prudential Regulation and CEO of the PRA.
“This will provide a clear message to individuals of what is expected from them and the consequences of not acting properly.”
The rules would punish bankers in the event of “misbehaviour“, a considerable downturn in financial performance or poor risk management, the Bank said.
They would also apply to bankers found to be indirectly responsible for such conduct, such as senior staff who allow misbehaviour on their watch through choice or incompetence.
The trade body the British Bankers’ Association said it supported the idea in principle, but has some concerns over its practicality.
Simon Hills, executive director at the BBA, told the BBC that if a bonus is paid for “conduct that has later been shown to be substandard, it is only proper that it should be returned“.
He added, “However, we should not underestimate the practical difficulties of recouping money that has already been paid.”
Despite evidence indicating that the public’s trust in bankers is yet to be restored after the financial crisis, Barclays recently irked its investors by deciding to increase its bonus pool by 10%, after their profits fell by 32%.
The Royal Bank of Scotland – which is 80% owned by the taxpayer – has also been forced to defend offering large bonuses to employees, after the bank reported losses in excess of £8 billion last month.