UK bankers face bonus clawback in clampdown


Misbehaving bankers could see their bonuses clawed back next year, under plans put forward by the Bank of England.

Under the plans, the Bank of England's Prudential Regulatory Authority (PRA) could force companies to retrieve bonuses, up to six years after they were paid out.

"We have an objective to ensure the safety and soundness of the firms we regulate and we won't allow remuneration schemes to exist that encourage behaviour likely to jeopardise financial stability," Andrew Bailey, CEO of the PRA, said in a statement.

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(Read more: RBS bonuses: Cameron to veto plans for a hike)

A misbehaving employee, or a firm that fails to carry out proper risk management, could be subject to a bonus clawback. Employees who knew about misconduct but failed to report or prevent it would also be at risk.

"The policy we are consulting on will ensure bonuses can be clawed back from individuals, where they have already been paid, if it becomes apparent they have put the stability of their firms at risk or engaged in inappropriate actions," said Bailey.

Do bonuses cause misbehavior?

The proposals come amid a fierce debate over bankers' remuneration and hostility towards the financial industry. The new plans build on the PRA's existing powers to stop firms from paying bonuses.

But not all experts are convinced that the clawback proposals will stamp out misbehavior in banks.

"While any measure to reduce excessive risk-taking by bankers at the expense of taxpayers is a step in the right direction, I doubt a clawback is as effective as a limitation on bonuses," Thorsten Beck, professor of banking and finance at Cass Business School, told CNBC in an emailed comment.

"Limiting variable compensation reduces incentives ex-ante, clawbacks impose the burden on regulators to prove wrong-doing after the fact. And not every excessive risk-taking can be classified as wrong-doing. So, this seems very much a second-best approach."

(Read more: Lloyds returns to profit, bonus pool $655 million)

If the rules are agreed by the Bank of England, they could be rolled out from the beginning of 2015.

The U.K.'s central bank is also investigating whether top banks have flouted European Union rules that state that bonuses can be no higher than an individual's fixed salary, or twice that amount with the consent of shareholders. Barclays and Lloyds are handing out huge share awards to top executives in an attempt to sidestep the bonus cap, while some institutions are considering hiking basic pay.

—By CNBC's Arjun Kharpal: Follow him on Twitter @ArjunKharpal