The Bank of England and the Financial Conduct Authority (FCA) have both published their responses to a report on a revised remuneration code for the banking industry.
The Changing banking for good report, which was published by the Parliamentary Commission on Banking Standards (PCBS) in June 2013, made a series of recommendations to the government, to regulators and to the industry itself, aimed at transforming the culture of the UK banking sector.
The report’s recommendations included:
- Ensuring that a greater proportion of senior employees’ remuneration is deferred, generally for a period of up to 10 years.
- Prohibiting variable, performance-related remuneration of non-executive directors of banks.
- Bank remuneration committees should disclose, in an annual report, the range of measures used to determine remuneration, including an explanation of how measures of risk have been taken into account and how these affected remuneration.
With regards to the first recommendation, the Bank of England has opted to give further consideration before reaching a view. It also stated it has already met the second and third recommendation or intends to do so.
In its response, it said: “The code already requires firms to have appropriate terms in relation to deferral in their employment contracts, and the [Prudential Regulation Authority] (PRA) assesses firms’ overall approaches.
“It will not require a new statutory framework for the revised code to take account of the PCBS recommendations, which included: more and longer deferral of variable remuneration, including up to 10 years; strengthening and broadening the application of malus to unvested awards and of clawback to vested awards; and tackling the practice of compensating recruits upon change of employment.
“It also included greater and more granular disclosure by remuneration committees in banks’ annual reports.”
The response from the Financial Conduct Authority added: “We do not believe that a new statutory code is required.
“We support the government’s view that the commission’s proposals can be achieved through our existing rule-making powers and changes to the 2009 code.
“We support the commission’s recommendation that deferred remuneration should be contingent on various factors, so that it can be recouped in a wider range of circumstances.
“The current remuneration code already gives regulators the power to require that a substantial proportion of remuneration be deferred for longer than the three-to-five year minimum required.”
The Prudential Regulation Authority will consult on a new code in 2014.