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(Rewrites first paragraph, adds detail, banking reaction, linkto factbox)
By Huw Jones
LONDON, July 30 (Reuters) - Miscreant bankers face havingtheir bonuses clawed back for up to seven years after theiraward under measures set out on Wednesday by the Bank ofEngland, as it tightens its regulatory clampdown on wrongdoingin the financial sector.
The measures, some of the world's toughest on the financialsector, are the Bank's latest attempt to avoid a repeat of themulti-billion pound taxpayer bailouts of Royal Bank of Scotland and Lloyds which marked the peak of thefinancial crisis of 2008 and 2009 in Britain.
Despite the scale of the crisis, few bankers weresubsequently punished for reckless behaviour and the sector'shefty bonuses remain a focus of public concern, given they havebeen blamed for encouraging the excessive risk-taking for rich short-term rewards which led to the financial sector meltdown.
The rule goes beyond the Bank of England's proposal in aconsultation paper in March for a clawback of bonuses up to sixyears from the date they were fully paid out.
Lawyers say enforcing clawbacks is untested in the UK courtsif a banker refuses to pay up, and there are also questions overwhat happens to tax paid on a recovered bonus. But some seniorfigures in the sector support the idea.
"The process of clawback can be extremely useful. We'veapplied it ourselves in cases where we've got things wrong,"Antony Jenkins, chief executive of Barclays, said.
The Bank and the fellow regulator the Financial ConductAuthority (FCA) also proposed in a new consultation that seniormanagers face clawbacks of up to 10 years if they are beinginvestigated.
"These proposals are tougher than the industry would haveliked, but there was a general resignation that they would beimplemented whatever the costs and technical difficulties andhowever far it puts the UK outside international norms," saidNicholas Stretch of law firm CMS.
The Association for Financial Markets in Europe (AFME), abanking lobby group, said it was concerned about the lack ofcoordination of clawback arrangements at a global level.
Britain's latest tightening of the screw on the financialindustry comes as bad behaviour is still being uncovered, withleading banks already fined for manipulating benchmark interestrates and braced for further possible fines after allegations ofrigging foreign currency rates.
Earlier this week Lloyds was fined $370 million for riggingbenchmark lending rates.
The new seven-year clawback rule for all bankers will applyto bonuses made on or after Jan. 1, 2015 to all London-basedstaff of deposit-taking banks, EU banks and major non-EU bankssuch as Citi, Morgan Stanley, Goldman Sachs and Credit Suisse.
RECKLESS BEHAVIOUR
Bonuses are typically paid out over three to five years andcan already be clawed back during this time, but the new ruleallows the clawing back of an award after it has been received.
Other rules already introduced on bonuses include a EuropeanUnion law limiting their value to twice the amount of fixed pay,subject to shareholder approval.
Britain has also already passed a law making recklessbehaviour by bankers a criminal act punishable by up to sevenyears in prison and Wednesday's consultation spelled out whichtypes of bank employees would be subject to this.
"We'll examine the detail of these new proposals withinterest, but it is important that any new regulation does notput British banks at a disadvantage when it comes to attractingand retaining the best workers here and overseas," said AnthonyBrown, chief executive of the British Bankers' Association.
Probes into some misconduct, such as rigging of marketinterest rates, take several years, meaning bankers involved mayhave already been paid bonuses covering the time therule-breaking took place.
The Bank and the FCA also on Wednesday published plans tomake top bankers directly accountable for their actions - knownas the senior managers' regime - by signing a statement listingtheir specific responsibilities, making it easier for regulatorsto bring them to book if something goes wrong.
They also proposed a certification regime for any employeewhose activities could potentially harm the bank or customers.
In addition, the two regulators proposed making bankers waitlonger to receive all their bonus. Currently the non-cash partof bonus is paid over three to five years and the regulatorswant a longer time period of seven years for senior managers.
"These requirements will create the toughest deferral regimein the world," said Rob Moulton of law firm Ashurst.
The deferred portion of a bonus for senior managers wouldonly start to be paid out after three years, or one year formore junior staff, the regulators also proposed.
"Today's consultations mark a fundamental change in theregulators' ability to hold individuals to account, which iswhat the public expects of us," FCA Chief Executive MartinWheatley said in a statement. (Editing by Matt Scuffham and David Holmes)
