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Bankers moving jobs face bonus crackdown

Published 13/01/2016

Tighter bonus rules were introduced after the 2008 financial crisis
Tighter bonus rules were introduced after the 2008 financial crisis

Bankers may see outstanding bonuses from their last job capped or scrapped when they move to a new firm under proposals from the Bank of England.

The Bank wants to clamp down on the current practice that sees lenders buy out bonuses of a banker who moves to a new firm from their previous bank. This ensures these payments are carried over with the executive to their new company.

But the Bank says these payments undermine tighter bonus rules introduced since the 2008 financial crisis, which allow bonuses to be clawed back if a banker is later found to be guilty of misconduct or risk management failings.

The Bank said in a consultation paper published today that bonus buyouts should in future be managed through the contract between the new employer and employee, which would allow for clawbacks if the old employer finds that the employee was guilty of misconduct.

The Bank said: "These proposals represent an important addition to the current remuneration rules which seek to ensure greater alignment between risk and reward, discourage excessive risk-taking and short-termism and encourage more effective risk management."

The Bank began consulting the financial services industry on these plans in 2014, and plans to introduce new rules later this year.

Andrew Bailey, deputy governor of the Bank of England and head of the Prudential Regulation Authority said: "Remuneration policies which lead to risk-reward imbalances, short termism and excessive risk taking undermine confidence in the financial sector.

"Today's proposals seek to ensure that individuals are not rewarded for bad practice or wrong-doing and should help to encourage a culture within firms where reward better reflects the risks being taken."

Last month European Union (EU) regulator the European Banking Authority (EBA) said new allowances banks recently have introduced for senior staff should count as bonuses if they are variable pay, rather than fixed salaries.

A number of UK banks pay senior bankers large allowances to sidestep EU bonus caps introduced in 2014 that restrict banks to awarding bonuses of 100% of basic pay, rising to 200% if shareholders approve.

However, these EBA proposals are not set to come into force until the March 2017 bank bonus round.

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