SINGAPORE: The Bank of England (BoE) said on Monday that senior bankers’ salaries may in future be at risk if they or their staff break rules, firing a warning shot to the City after the latest dealing room scandal cost six banks $4.3 billion in fines.
Transcripts of currency traders from banks such as UBS boasting in online chatrooms about their bonuses while they tried to manipulate benchmark rates have put regulators under renewed pressure.
Europe has already agreed to curb bankers’ bonuses, but the Bank of England has said that policy will not tackle the problem as lenders can dodge it by paying allowances and hiking fixed pay.
The Bank, which regulates Europe’s financial hub in London, is bringing in its own regime which will see bonuses deferred for years and allow them to be clawed back if wrongdoing emerges — even if the money has already been spent.
Yet with Europe’s bonus cap cutting the pool of money that the Bank of England can target, Mark Carney, its governor, said salaries, or fixed pay, could also be in its sights.
“Standards may need to be developed to put non-bonus, or fixed, pay at risk,” Carney said in a speech in Singapore.
“European rules create a situation that makes the case for additional reforms to ensure that the burden of excessive risk taking and misconduct by staff can still be borne by those staff.”
Given that the Bank of England’s new regime is not yet in place, remuneration experts said Carney’s speech was a tap on the shoulder rather than a plan for immediate action and underlined the political pressures at play.
A group of UK lawmakers brought together to look at ways of improving behaviour in the wake of banking scandals has said pay is at the heart of the problem.
“Mark Carney is firing a warning shot. He is putting the industry on notice that if they just increase fixed pay and take employees out of bonus schemes that is not going to work for him,” said Tom Gosling, head of reward practice at PwC.
International regulators may yet introduce reforms that would require banks to pay part of their senior staff bonuses in bonds connected to the performance of the bank.
Carney, who is also chairman of regulatory watchdog The Financial Stability Board, said a proposal by New York Federal Reserve Bank President William Dudley to bring in “performance bonds” for senior bankers was “worthy of consideration”.
Dudley said last month that deferred pay for senior bankers should be in the form of debt, rather than shares, and that these “performance bonds” would be forfeited to pay some of the fines imposed on a lender for wrongdoing, easing the burden on shareholders.
“I think introducing bonds into variable pay could happen sooner rather than later,” said Gosling.
“There is a lot of common ground between the EU, the Bank of England and the Fed on the use of bond type instruments in remuneration.”