Senior bosses at banks and some investment firms face paying back bonuses going back as far as 10 years if misconduct is discovered.
New rules on remuneration were announced this morning by The Prudential Regulation Authority and the Financial Conduct Authority, giving regulators' clawback powers.

The move comes as part of reforms to “discourage irresponsible risk-taking and short-termism, and to encourage more effective risk management”.

The new rules apply to banks, building societies, and PRA-designated investment firms, including UK branches of non-EEA headquartered firms.

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FCA chief executive Martin Wheatley said: "Today’s rules are part of a wider package that is being announced over the summer to embed an accountable culture in the City. Our rules will now mean that senior managers face clawback of bonuses for up to 10 years, if misconduct comes to light.

"This is a crucial step to rebuild public trust in financial services, and allows firms and regulators to build long term decision making and effective risk management into people’s pay packets."

Andrew Bailey, deputy governor for prudential regulation, Bank of England and chief executive of the Prudential Regulation Authority, said: "Effective financial regulation involves creating appropriate incentives to encourage individuals to take greater responsibility for their actions. Our intention is that people in positions of responsibility are rewarded for behaviour which fosters a culture of effective risk management and thus promotes the safety and soundness of individual institutions."

The primary changes have been summarised by the regulators as the following:

• Extending deferral (the period during which variable remuneration is withheld following the end of the accrual period) to seven years for senior managers, five years for PRA designated risk managers with senior, managerial or supervisory roles, and three to five years for all other staff whose actions could have a material impact on a firm (material risk takers).

• The FCA is introducing clawback rules (where staff members return part or all of variable remuneration that has already been paid to the institution under certain circumstances) for periods of seven years from award of variable remuneration for all material risk takers, which were already applied by the PRA. Both the PRA and the FCA clawback rules will be strengthened by a requirement for a possible three additional years for senior managers (10 years in total) at the end of the seven year period where a firm or regulatory authorities have commenced inquiries into potential material failures.

• Prohibiting variable pay for non-executive directors.

• Making explicit that no variable pay including all discretionary payments should be paid to the management of a firm in receipt of taxpayer support.

• Strengthening the PRA requirements on PRA dual-regulated firms to apply more effective risk adjustment to variable remuneration.

The clawback and deferral will apply to variable remuneration awarded for performance periods beginning on or after 1 January 2016, while other requirements will apply from 1 July 2015.