FCA 'sympathetic' to clawback of bankers' fixed pay, says Wheatley

Martin Wheatley told the Treasury Select Committee that new EU rules restricting bankers' bonuses to a maximum of 200% of salary will "hurt the ability of regulators to hold people to account" by ordering the repayment of bonuses. Evidence gathered by the FCA showed that bankers' fixed pay had increased by 100% since 2008 in response to the measures, he said.

In a speech in Singapore at the end of last year, Bank of England governor Mark Carney raised the possibility of salary clawback as a means of "[ensuring] that the burden of excessive risk-taking and misconduct by staff can still be borne by those staff" when scope for recovery of bonus payments was limited. This could potentially be done by paying part of bankers' salaries in performance bonds or other non-cash instruments, he said.

The UK introduced some of the toughest rules on bonus clawback in the world at the start of this year, alongside a new regulatory regime for 'senior persons' working in banks. The new conduct rules make senior bank staff personally accountable for their decisions, and are backed by a new criminal offence for reckless misconduct leading to bank failure. The new bonus clawback regime gives banking regulator the Prudential Regulation Authority (PRA) the power to recover variable pay elements for up to seven years from the date of the award.

However, Wheatley told the Treasury Select Committee that the effectiveness of this new power had been diminished somewhat by the incoming EU bonus cap, which comes into force this year as part of the revised Capital Requirements Directive (CRD IV). The measures restrict bankers' bonuses to 100% of their fixed remuneration in any given year, or 200% with the agreement of shareholders.

"We have lost the tool we had, which was clawback of a significant component of compensation, so being able to claw back fixed pay would be a substitute, to a degree," he said. "There are all sorts of contractual issues as to whether that could be imposed in practice, but we are sympathetic [to the idea]."

The UK, which has the largest financial services sector in the EU, has opposed the introduction of a bonus cap since it was first proposed, even going so far as to lodge a legal challenge to the policy at the Court of Justice of the European Union (CJEU). It dropped this challenge in November after an EU advocate general rejected its arguments.