Bank of England proposes amendments to employee contracts to combat misbehaving bankers

The Bank of England has been quoted as saying that banks that operate in the UK should make changes to their employee contracts that would allow financial institutions to recoup the bonuses they award to bankers who have broken financial-conduct rules or has exceeded their risk limits. In a statement today, Bloomberg quoted BOE unit Prudential Regulation Authority, who said that the bonus clawback stipulation will help lenders retrieve bonuses they have given to misbehaving bankers for up to six years beginning New Year's Day next year.

PRA Chief Executive Officer Andrew Bailey have said, "We won't allow remuneration schemes to exist that encourage behavior likely to jeopardize financial stability. We have an objective to ensure the safety and soundness of the firms we regulate."

The news agency said banks in the EU are required to pay out half of the bonuses to employees and senior staff members who are identified as risk-takers in instruments aside from cash so banks will be able to encourage the employees to perform better for the financial institutions' long-term performance.

Bloomberg said the amendments are part of the measures global regulators had taken to curb bankers' appetite to take risks that could result large losses for their employers. Today, the European Union had published its proposals to require the debt that is used in employee bonus payments to be written down or be converted in shares should a bank run into difficulties. In the UK, bonus clawbacks are more preferred as opposed to implementing caps on bonuses, as Bailey said the latter will just lead into higher salaries. Last year, Royal Bank of Scotland Group Plc was able to recoup £302 million or $504 million by shearing off its bonus pool and reclaiming deferred pay so the bank could pay the fines it incurred due to the London Interbank Offered Rate, or Libor manipulation scandal.

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Bank of England, Prudential Regulation Authority bonuses proposal

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