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October 7, 2013 10:48 pm
UK financial watchdogs are examining whether plans to strip bankers of outstanding bonuses if their institution is bailed out by the government would contravene European human rights law.
The recommendation to give regulators powers to cancel payments, including deferred bonuses and unvested pensions, if a bank receives state aid was one of many proposals made by the Parliamentary Commission on Banking Standards earlier this year.
Responding to the commission’s report on Monday, the Financial Conduct Authority, which monitors behaviour within financial firms, and the Prudential Regulatory Authority, which sits within the Bank of England and supervises financial institutions, said they would “consider how to address this, consistent with European human rights provisions”.
Their concern is that forcing bankers to give up legally-earned pay if their bank needed to be bailed out could trigger a wave of challenges on human rights grounds.
The FCA and the PRA were largely supportive of the commission’s proposals to improve industry standards.
They accepted the need to introduce a tougher approval process for senior appointments in the industry to replace the existing “approved persons” register. They also supported the recommendation to give regulators additional powers to boost competition among financial institutions.
The regulators backed broad moves to overhaul bankers’ pay – by increasing the proportion that is deferred and extending the length of time it can be held back to 10 years, for example.
They also supported moves to strengthen their ability to recoup pay awards in the most serious cases of misconduct – and said they were sufficiently equipped to do this if necessary.
However, both the PRA and FCA concluded that an entire new statutory framework for remuneration – as had been proposed under the commission’s plans – was not necessary. They said the new proposals could be introduced into the existing code.
Andrew Tyrie, the Conservative MP who chaired the commission, welcomed the support from regulators but said it needed to be “translated into action” by implementing the package of reforms in full.
“Banks are not the only institutions to have suffered from serious lapses. So did regulators,” said Mr Tyrie.
“The vigour with which the new regulators embrace the Banking Commission’s proposals – which give them new powers as well as new responsibilities – will be a litmus test of the extent to which they are putting these lapses right.”
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