PRA Firms and Bonus Clawback Provisions

By way of explanation, A PRA approved firm is one that is regulated by The Prudential Regulation Authority (“the PRA”).  The PRA is part of the Bank of England and essentially regulates, supervises and sets standards for financial institutions eg. Banks, building societies, insurers.

I was shocked to learn that since the economic crisis erupted in 2008 approximately £80 billion has been paid out in bonus payments to bankers. 

When reading of such bonus payments having been made, being the cynical employment lawyer that I am, I often wonder what would happen if having received the bonus payment it becomes apparent that the banker has acted in a corrupt/immoral way or has just simply not behaved as a “model” employee should:  Can the bank then recouperate the bonus or not?

Following considerable political/media pressure, I (for one) was therefore pleased to learn that from 1st January 2015 PRA approved firms will be able to claw back variable remuneration (ie. Bonus payments) that have been paid to its employees where it deems it appropriate to do so.  For all variable remuneration payments made on or after 1st January 2015, there is now the ability for the PRA firm to claw back such payments for a period of up to 7 years from the time that it is paid to the employee.

However when exercising the ability to claw back payments made, the firm must act proportionately assessed on an individual case by case basis.  For example, bonus payments may be clawed back in circumstances where an employee has acted in such a way that he is regarded to have misbehaved, where there is employee error or where the firm suffers a material risk of failure or loss. 

Such firms do however need to make it clear to their employees in what circumstances the remuneration can be clawed back and in that respect, their documentation should be amended to reflect this.

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