FCA and PRA set out bankers’ bonus clawback rules

The FCA and the Prudential Regulation Authority have rolled back on plans to ban bonus “buyouts” as part of their latest rules on pay.

The regulators first consulted last July on whether they could ban the practice where employers offer to buy the shares or options a prospective employee has accumulated under their current employer’s bonus scheme.

But in a policy statement, published today, the FCA and PRA say they will continue to explore how awards can be held in a way that allows clawback by a previous employer.

At the same time, the new rules mean senior managers and risk managers face extended deferrals of up to seven years on bonuses, with the most senior staff now subject to potential clawback for 10 years where a firm has or regulator has started enquiries into failures.

The new rules apply to banks and building societies and UK branches of non-EEA headquartered firms. They also ban variable pay for non-executive directors, and prevent bonuses for the management of firms receiving taxpayer support.

FCA chief executive Martin Wheatley says: “Today’s rules are part of a wider package that is being announced over the summer to embed an accountable culture in the City. Our rules will now mean that senior managers face clawback of bonuses for up to 10 years, if misconduct comes to light.

“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.”

The clawback and deferral rules will apply to variable remuneration awarded for performance periods beginning on or after 1 January 2016, while other requirements will apply from 1 July 2015.