BoE to increase oversight of bankers and their bonuses

By Huw Jones

LONDON, July 29 (Reuters) - Top bankers in Britain willbecome directly accountable for their actions under proposalsfrom regulators on Wednesday, with those behaving recklesslyfacing a spell in jail.

The Bank of England will also publish final rules on clawingback bonuses paid to bankers caught up in misconduct, andconsult on closer scrutiny of how awards are made.

The measures are in response to public anger over having tobail out lenders such as Royal Bank of Scotland andLloyds in the 2007-09 financial crisis, with fewindividual bankers punished.

Parliament also wants to restrain big bonuses at a time whenmost people have had to tighten their belts and fresh scandalsemerge in the banking sector, such as Lloyds' $370 million finethis week for rigging market benchmarks.

The BoE will launch a consultation on tougher oversight oftop bankers, known as the senior persons regime, as called forby a parliamentary commission on banking standards.

"The consultation paper due out tomorrow is likely to be agame-changer, developing the concepts of reckless mismanagementand the reversal in the burden of proof, and the introduction ofcriminal sanctions," said Omar Ali, UK head of banking andcapital markets at EY consultancy.

The outline of the new regime is already known, with newpowers to jail bankers for up to seven years for recklessmisconduct. Top bankers would have to prove to regulators theywere not aware of or had challenged dubious behaviour at thetime.

Senior bankers will have to sign a statement listing theirspecific responsibilities, making it easier for regulators tobring them to book if something goes wrong.

"The regime is likely to be the strictest of any market orany industry," Ali said.

BONUS CLAWBACK

The Bank will publish the final version of rules it proposedin March on clawing back bonuses already pocketed.

The Bank has proposed that bankers and their bosses wouldhave to hand back a bonus up to six years after it had beenreceived if there has been misconduct.

Six years was proposed as this was seen as the longestperiod possible under British contract law.

There will also be consultation on broader pay issues.

Under European Union law, only a minority portion of a bonuscan be paid upfront in cash, with the rest deferred over fiveyears and paid in shares that vest over time.

A parliamentary commission on banking standards hadrecommended a 10-year deferral period, but proposing such alengthy period could fall foul of UK contract law and the Bankis expected to come down somewhere in the middle.

The consultation is expected to look at how "buyouts" arehandled or what happens to a banker's bonus pot if he leaves onefirm for another.

Bankers also expect a reference to what yardsticks are usedto determine good performance that should be awarded, such asthe bank's return-on-equity or return-on-capital.

Top staff are waiting to see if the Bank will propose thatchunks of a bonus should be paid in bonds that would be tappedto shore up the lender if it gets into trouble.

While Britain is toughening up aspects of bonuses, it ischallenging an EU cap on awards from 2015 in the bloc's topcourt, saying it simply encourages higher fixed pay.

Several UK banks already plan to pay "allowances" to boostfixed pay to get round the cap which limits a bonus to no morethan twice fixed pay, subject to shareholder approval.

The EU's banking watchdog, the European Banking Authority,will publish guidelines on permissible allowances by year end. (Reporting by Huw Jones, editing by Louise Heavens)