Bank bosses may be forced to give back their bonuses they received at anytime within the last 6 years, the Bank of England has identified.
The Bank revealed that individuals who were found in the future to be guilty of incurring heavy losses or high risk management could be at risk themselves of forfeiting their bonuses, even if they are found to be guilty offenders years after they were alleged to have committed the misconduct.
The banking sector has come under intense fire in recent years, following multiple bail outs that were tax payer funded following the economic downturn in 2008.
The nature of the Bankís remarks are contrary to their prior announcements on banking bonuses, where they pledged to ensure that all bonuses that were promised to banking staff would be paid out in full.
The news will likely shake up the banking sector, and a number of bankers will begin to feel apprehensive about their current status in relation to bonuses.
BBC business editor Robert Peston said: “This reform will worry bankers, because it means bonuses they have already pocketed are no longer safe for them and might have to be paid back.”
The news has been met with widespread praise from a multitude of different organisations and public sector groups, who have highlighted that it will go a long way to restoring the reputation of banks, and changing perceptions that they are solely profit orientated.
Deborah Hargreaves, director at the High Pay Centre, said: “I think claw back is a good thing and extending it to six years does give a chance for those bets to go wrong – some of them can take a while to come to light.”
Ms Hargreaves added: “What the public really sees, and I agree, is it is quite hard to justify getting a bonus if the bank is making a loss.”
She also argued that people would be happier with the new system as only bankers who performed well would receive bonuses, rather than all being entitled to them at the end of each year.
Simon Hills, executive director at the British Bankers’ Association (BBA), said he advocated the change in the bonus system to a meritocracy, and “conduct that has later been shown to be substandard, it is only proper that it should be returned”.
But he added: “However, we should not underestimate the practical difficulties of recouping money that has already been paid.
“The BBA will work with our members and the Prudential Regulation Authority in seeking to overcome those challenges.”
Recovering the money given to proven guilty offenders will likely be a lengthy and somewhat complex process, and much work will need to be done in order to create an easy and clear procedure for bonus reclaiming.