LONDON - Misbehaving bankers and their bosses will have to hand back bonuses up to six years after they pocket them under a rule the Bank of England is proposing to prevent excessive risk-taking.
The aim of the rule put out for consultation by the central bank on Thursday is designed to stop bankers taking huge bets in the knowledge that they could move jobs before any problems come to light. It marks a toughening of current rules that allow only for the cancellation or reduction of parts of bonuses that have been awarded but not yet paid.
British lawmakers called for such a move in a report on banking standards compiled amid public anger at bankers receiving big bonuses even though some banks had to be propped up by taxpayers in the 2007-09 financial crisis and a number of lenders were hit with misconduct fines.
A new clawback rule will necessitate a rewriting of staff contracts to make it a legal requirement for senior bankers to return bonuses if they are found to have misbehaved, even if they no longer work at the bank.
"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," BoE Deputy Governor Andrew Bailey said in a statement.
"This will provide a clear message to individuals of what is expected from them and the consequences of not acting properly," said Bailey, who also heads the BoE's Prudential Regulation Authority, which supervises Britain's banks.
Rob Moulton of Ashurst law firm said clawing back bonuses already paid was politically attractive but tough in practice.
"It may be more PR than practical impact. Do I think bankers won't come to work in London because of this? No," Moulton said.
The British Bankers' Association, a trade body for the UK's lenders such as HSBC and Barclays, said it supported the concept of clawback but the practical difficulties of recouping money already paid should not be underestimated.