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Bank of England sets out bonus clawback rules

The Bank of England has proposed new rules which would see firms regulated by the Prudential Regulation Authority to claw back bonuses in the event of rule breaches or poor finanical performance.

Under the proposals, firms would have to introduce clauses in employment contracts which allow bonuses to be clawed back. 

The Bank says pay could be clawed back in the event of:

  • Evidence of employee misbehaviour or error;
  • The firm or department suffering a material drop in financial performance; and/or
  • Material failure of risk management

The rules could be applied to staff indirectly responsible for failings, as well as those directly responsible. The proposed rules will come into effect from January 2015.

Bank deputy governor for prudential regulation and PRA chief executive Andrew Bailey says: “We have an objective to ensure the safety and soundness of the firms we regulate and we will not allow remuneration schemes to exist that encourage behaviour likely to jeopardise financial stability.

“The policy we are consulting on will ensure bonuses can be clawed back from individuals, where they have already been paid, if it becomes apparent they have put the stability of their firms at risk or engaged in inappropriate actions. This will provide a clear message to individuals of what is expected from them and the consequences of not acting properly.”

Last month Bailey signalled the Bank would consult on greater bonus clawback powers from senior staff if problems arise after they have left a firm.

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