Regulators may need to target bankers’ fixed pay as well as bonuses to rein in incentives for market abuse and excessive risk-taking
Carney’s warning of a further regulatory crackdown on pay comes a week after six banks including U.K.-based Royal Bank of Scotland Group Plc and HSBC Holdings were fined $4.3 billion as part of a global probe into rigging of foreign-exchange benchmarks
The European Banking Authority last month moved to close a loophole that allows banks to sidestep the EU bonus cap by awarding staff payments under different measures. Thirty-nine banks are paying staff discretionary role-based payments they classify as fixed pay, breaking bonus rules, it said.
A proposal from William C. Dudley, president of the Federal Reserve Bank of New York, for certain staff to be paid partly in performance bonds “is worthy of investigation as a potentially elegant solution” for targeting fixed pay, Carney said. “Senior manager accountability and new compensation structures will help to rebuild trust in financial institutions.”
New curbs would build on top of existing pay rules put in place by regulators, which require payment of bonuses to be deferred for several years, while allowing banks and regulators to retroactively cut and recoup variable pay.
“We are consulting on extending deferral periods, widening the scope for groups of employees to have their bonuses reduced where there are more pervasive issues of performance or risk management, and considering options to prevent individuals side-stepping these rules,” Carney said.