Global regulators will reinforce their rules on banker pay next year to better deter misconduct and avoid more multi-billion dollar fines potentially destabilising banks. The Financial Stability Board (FSB), which co-ordinates regulation for the Group of 20 economies (G20), had published rules on banker pay after the 2007-09 financial crisis to discourage excessive risk-taking and said on Thursday it was working on further guidance.
The rules require a chunk of any given bonus to be deferred over several years and paid in shares, so bankers are less tempted to take huge bets in a bid to win a bigger payout. Since the crisis, however, misconduct has emerged as the biggest headache for regulators, who have fined banks billions of dollars for trying to rig interest rate benchmarks and currency markets.
The FSB, chaired by Bank of England Governor Mark Carney, said it would develop by the end of next year guidance to supplement its banker pay rules that will better link compensation with conduct. The guidance, which would be put out to public consultation, may include details on how to stop or recoup bonuses more effectively after misconduct emerges.
It would offer views on how to address limitations and constraints to their effective use, the FSB said, meaning the legal and practical hurdles faced when banks try to claw back a bonus that has been paid and the banker has long moved on. Different approaches have been taken in recouping or stopping bonuses, which may be due to the fact that the FSB's rules do not explicitly address miscoduct risk, the G20 watchdog said.
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