RegulationJul 30 2014

Lawyers lament potential exodus from banker bonus clawback

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The Bank of England’s new remuneration code for bankers could impact London’s competitiveness and could cause senior staff to leave the City, law firms have warned, following on from today’s announcement.

FTAdviser sister publication the Financial Times revealed today (30 July) that the Bank of England has unveiled new powers to clawback banker bonuses up to seven years after they have been paid and a new law that would see reckless bankers facing jail time.

The changes to the BoE’s remuneration code would also force bankers to hand back their bonuses even if they had spent them.

Rob Moulton, partner at law firm Ashurst, said the requirements will create the toughest deferral regime in the world.

He said: “They may fit well with the political agenda on bankers’ pay but could impact upon London’s competiveness in an internationally mobile business.

“Reversing the burden of proof on senior managers so that they are ‘guilty until proven innocent’ could result in top talent opting out of senior roles.

“Combined with tighter rules around remuneration, this may have the exact opposite effect the UK government was trying to avoid by fighting the EU bonus cap.”

Nicholas Stretch, partner in the tax team at law firm CMS, stated that the proposals put the UK outside international norms.

He said: “At least banks will not have to face amending remuneration which has already been awarded, as the proposals only affect bonuses awarded from January 2015.

“That would have posed all sorts of contractual issues which have now been avoided.”

James Hender, head of private wealth at Saffery Champness, called for set procedures to be outlined in statute to ensure that the tax implications of a bonus claw back are handled fairly.

“It is unclear what would happen if the banker in question has left the UK. Without international reach to the rules, it would be very tempting for someone to skip the country if he thought that a clawback was imminent.”