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At approximately 10:00 am GMT, Wednesday morning, the Bank of England is expected to publish Consultation Papers 14/14 and 15/14, “Strengthening Accountability in Banking,” and “Remuneration” outlining, to the extent that we know at this point, new guidelines for the UK banking sector, including further empowering the BoE’s ability to clawback variable bonuses and incentive pay plans for up to seven years.
Omar Ali at EY consultancy indicated that, “The consultation paper due out tomorrow is likely to be a game-changer, developing the concepts of reckless mismanagement and the reversal in the burden of proof, and the introduction of criminal sanctions.”
The new regulations are a postscript to recommendations for stiffer banking regulations by Parliament’s banking commission as fallout following the Libor scandal and several other abuses sponsored by bankers at multiple levels and institutions throughout the UK. The clawback provisions have already been broadened by the BoE’s Prudential Regulation Authority to require banks to stop non-vested bonuses when directed to do so.
The new rules will be implemented as of 01 January 2015, giving the banks adequate time to revise existing employment contracts to comply.
Go Directly to Jail – Do Not Pass Go – Do Not Collect $200.
It is reasonable to expect that there will be some blowback from the banks claiming that the new rules have the potential to proverbially handcuff UK banking operations.
Speaking of handcuffs, it is also increasingly likely that bankers who try to bend or break the rules will feel the steel clamp down on their wrists as they are hustled off to the hoosegow. Or, as Mr. Ali put it, “Senior bankers will need to decide whether they are willing to take on this level of personal risk.”
With all due respect, I think that it is about time these they had something on the line. If the punishment does not outweigh the wrongdoing, there really is no risk. There is no legitimate reason why these executives should be immune from a principle of life that the rest of us are subject to. Laws without consequences for breaking them are no laws at all. One thing is abundantly clear. It is readily apparent that many of the UK’s banking executives have previously felt little or no risk if caught violating the law and, in effect, fleecing their clientele.
Some will argue that it is unfair that British banking rules should be tougher than those applicable to their peers in other countries. In fact, the British Bankers’ Association (BBA) has already thrown down the gauntlet on behalf of their members. The BBA said that, ” It could be argued that such repayment provisions are unenforceable on legal grounds because they are a ‘penalty clause’; and/or a restraint on trade; and/or counter to the doctrine on forfeiture.”
On the other hand, I can hardly think of a singular group more deserving, based on past performance, of stricter regulations. They can cry “foul” all they want, but the reality is that they are the ones who have committed the fouls and they, therefore, are the ones who should pay the penalties.
