UPDATE 2-Britain finalises "toughest" banker bonus rules in the world

* Top executives could have bonuses clawed back for decade

* Critics question whether rules will work

* No ban on banks buying out bonuses for new hires (Adds further details)

By Huw Jones

LONDON, June 23 (Reuters) - Top bankers in Britain couldhave their bonuses clawed back a decade after they were awardedunder proposals from regulators on Tuesday that would makeindustry pay curbs the toughest in the world.

Critics said the plans meant that British banks would haveto pay a premium to attract top bankers from overseas, whilelawyers questioned whether they could be enforced.

For chief executives and chairmen, a bonus could be clawedback for up to 10 years if misconduct is uncovered, the Bank ofEngland's Prudential Regulation Authority and Britain'sFinancial Conduct Authority said.

Senior managers face a seven-year clawback period, droppingto five years for more junior staff.

"This is a crucial step to rebuild public trust in financialservices, and allows firms and regulators to build long termdecision making and effective risk management into people's paypackets," FCA Chief Executive Martin Wheatley said.

Public anger at big bonuses awarded to bankers who werebailed out by taxpayers or found to have tried rigging Liborinterest rates or currency markets sparked new curbs across theworld but Britain has gone much further than other countries.

Nicholas Stretch of lawfirm CMS said it would be verydifficult to make the lengthy clawback rules work in practice.Bankers may have moved to another part of the world by the timea clawback is ordered.

Most of a bonus is now deferred over several years to makeit easier to halt payments if misconduct is uncovered.

The new rules require the non-cash part of a bonus to bepaid out over seven years for top managers.

NO BAN ON BUYOUTS

Bonuses for non-executive directors and for management of abank being shored up by taxpayers are banned from July. Theclawback and deferral rules come into force next January.

After the government had to rescue several lenders in the2007-09 financial crisis, policymakers want to make it harderfor bankers to escape financially if misconduct is uncoveredyears later.

"As promised by the government, the UK now has the toughestbank pay rules in the world," said Jon Terry, a pay expert atconsultancy PwC.

"The biggest concern for banks headquartered in the UK isthe uneven playing field that now exists between the UK and therest of the European Union, adding to the existing differencesbetween the EU and the rest of the world," Terry said.

British banks will likely have to pay a premium to attractsenior executives from outside the country with more in the formof fixed pay, Terry added.

The FCA's Wheatley said the rules are part of a widerpackage being announced over the summer to include requirementsfor banks to specify who is responsible for what and make iteasier for regulators to pin blame.

The regulators also spelled out on Tuesday what must happenwhen a rival bank offers to honour a new hire's bonus awarded bytheir former employer, a key element in recruiting staff.

Buyouts must be structured so that they vest no earlier thanthe awards they replace, meaning the deferred portion of thebonus cannot be cashed in any quicker.

A simple ban on buyouts had been among the options proposedlast year but this has now been rejected. The regulators willnow look at how the transferred bonus could be clawed back bythe bank that originally awarded it if misconduct emerges. (Reporting by Huw Jones; Editing by Louise Heavens and KeithWeir)