Bankers reaped the whirlwind yesterday as the Bank of England told the industry’s masters of the universe that they could lose their bonuses for up to seven years after they have been agreed, if they are found responsible for misconduct or their decisions go bad.
New rules will strengthen a ban on lucrative pay-off and pension packages for bosses of bailed out banks, in a move that appears designed to prevent a repeat of the controversy surrounding the pension package handed to Fred Goodwin when he departed Royal Bank of Scotland.
Bosses will also face annual “MOT” style assessments of competence by their employers, who must then report back to regulators and will have to take responsibility for specific functions. This means that they will face the consequences in the event of future scandals, to prevent a repeat of the parade of bosses appearing before the Treasury Select Committee saying that they did not know what was going on under their own noses.
The crackdown immediately sparked a warning from the British Bankers’ Association that the measures could put London’s financial centre at risk.
But that appeared to put the industry body at odds with one of its biggest members. Barclays’ chief executive, Antony Jenkins, said: “Banks have to run themselves in the right way. We have put culture first because we have to regulate and moderate our own behaviour.
“I do understand it is important for regulators to have sanctions. Conceptually we are comfortable with it but we have to see the detail exactly in practice. It will run concurrently with deferral already in place at Barclays. In our case it’s three years, in some cases five.”
The rules apply to all the big UK banks, plus the subsidiaries of foreign banks operating in London. It is understood that watchdogs are working on finding ways to apply them to branches of foreign banks, which are presently overseen by their home country regulators. Some banks with branch-based structures from outside the EU could be kicked out of London or ordered to set up subsidiaries, if watchdogs are unhappy with the quality of their home regulators.
Combined, the reforms make London’s pay regime the toughest in the world. The seven-year clawback period comes into force on 1 January, with many of the remaining rules out for consultation.
However, the expectation is that plans will become rules as announced. One measure watchdogs are seeking ideas on, however, is preventing bankers from avoiding clawback by changing jobs and being handed golden hellos in lieu of share options from their previous employers.
Sources close to the Bank of England insisted that it was “coincidental” that the crackdown was announced just two days after the Bank’s Governor, Mark Carney, launched a furious attack on Lloyds Banking Group in a letter to its chairman.
It followed regulators’ findings that Lloyds’ traders were found to have rigged interest rates to avoid fees due to the central Bank from rescue loans during the financial crisis. Mr Carney described the conduct as “reprehensible” and probably criminal.
His deputy, Andrew Bailey, said yesterday: “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 to take greater responsibility.”
But Simon Chouffot, a spokesman for the Robin Hood Tax campaign which lobbies for a financial transaction tax on banks, said: “After five scandal-ridden years it is right that the authorities are promising to clamp down on the industry’s rewards for failure. Yet a pledge to claw back money from a few bankers years from now is not enough – the sector as a whole must pay for the damage it has already caused.”