Bank of England proposes six-year clawback on bankers' bonuses

* New rule due to be in force from January 2015

* Broad scope proposed to include bosses of misbehavingstaff

By Huw Jones

LONDON, March 13 (Reuters) - Misbehaving bankers and theirbosses will have to hand back bonuses up to six years after theypocketed the cash under a proposed rule from the Bank of Englandto prevent excessive risk-taking.

The aim of the rule put out for consultation by the centralbank on Thursday is designed to stop bankers taking huge bets inthe knowledge that they could move jobs before any problems cometo light and marks a toughening of current rules that allow onlyfor the cancellation or reduction of parts of bonuses that havebeen awarded but not yet paid.

The latest move follows a call from British lawmakers in areport on banking standards in response to public anger atcontinuing high bonuses after lenders had to be propped up bytaxpayers in the 2007-09 financial crisis and heightened by aspate of misconduct fines for a number of banks.

A new clawback rule will necessitate a rewriting of staffcontracts to make it a legal requirement for senior bankers toreturn bonuses if they are found to have misbehaved, even ifthey no longer work at the bank.

"The policy we are consulting on will ensure bonuses can beclawed back from individuals, where they have already been paid,if it becomes apparent they have put the stability of theirfirms at risk or engaged in inappropriate actions," BoE DeputyGovernor Andrew Bailey said in a statement.

"This will provide a clear message to individuals of what isexpected from them and the consequences of not acting properly,"said Bailey, who also heads the BoE's Prudential RegulationAuthority, which supervises Britain's banks.

BROAD SCOPE

The new rule will be applied when there is "reasonableevidence of employee misbehaviour or material error", if thereis a "material downturn" in the bank's performance or therelevant business unit suffers a material failure of riskmanagement, the BoE said.

Clawbacks will not only be applied to staff directlyinvolved in misconduct, but also to those who could have been"reasonably expected" to be aware of the failure or misconductat the time and failed to take action.

Bosses of staff caught up in misconduct could also havetheir bonuses clawed back if they are deemed indirectlyresponsible or accountable for the failure or misconduct.

The public consultation period will last two months and therule is due to come into effect in early 2015, meaning it willcover bonuses related to this year's performance.

A six-year cut-off has been proposed because this is thelongest period possible under British contract law.

Britain views the ability to claw back bonuses as a bettermethod for dampening excessive risk-taking than the new EuropeanUnion cap on bonuses that will affect payments made from earlynext year.

Under the EU rule, bonuses will be capped at no more thanfixed salary, or twice that amount with shareholder approval,and apply to bankers earning more than 500,000 euros ($695,200).

Britain, the base for about 80 percent of the bankers whowill be affected, is challenging the rule in the EU's top court.