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British turn screws on banks and bonuses

Wednesday, July 30 12:44:32

Top bankers in Britain will be held directly accountable for decisions they take under proposals published today to make it easier for regulators to punish misbehaviour and claw back bonuses if cases of misconduct.

Following are the main elements of the new senior managers regime and bonus rules proposed from 2015, part of the regulatory response to multi-billion pound taxpayer bailouts of lenders such as Royal Bank of Scotland and Lloyds in the financial crisis of 2008 and 2009:


Defines senior managers as chief executives, chairmen, chief finance and risk officers, heads of internal audit, some non-executive board members, executives responsible for money laundering reporting and compliance oversight;

Senior managers come under new law that punishes reckless behaviour with up to seven years in prison;

Each senior manager must sign a statement spelling out their specific responsibilities and regulators could insist on further training as a condition for authorising the person;

Handover arrangements must be in place so that a new senior manager is aware of all risks;

Reversal of burden of proof in civil cases: a senior manager will have to show proof of innocence in any misconduct case, such as evidence that a decision was challenged at the time. Currently, regulators have to show a banker knew misconduct was taking place.


From January 2015 a bonus given after that date can be clawed back up to seven years from the date it was awarded, if there has been misconduct;

A proposal that a bonus awarded to a senior manager can be clawed back up to 10 years if the bank has started an inquiry into "potential material failure" or if a regulator has begun a probe;

A proposal requiring to spread the payment of a bonus over five or seven years, depending on seniority, compared with current timespan of three to five years;

Proposals to make it harder for bankers to evade malus or where a bonus which is still being paid out can stopped because of misconduct;

Proposal to give regulators powers to veto bonuses being awarded at banks that are being bailed out;

Proposal to determine the size of the bonus pool by deducting a prudential valuation adjustment figure from the bank's fair value accounting profit;

Asks whether buy-outs should be banned. This refers to a banker moves to a competitor which agrees to compensate the person for forfeited bonuses, a step which wipes the slate clean from potential clawbacks;

Proposal to stop banks relying on a single short-term revenue or profit yardstick, like return on equity, to determine the size of a banker's bonus. (Reuters)

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