New remuneration rules for the financial services industry have been published by the sector regulator.
The framework, unveiled this week by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), applies to organisations such as banks, building societies and investment firms.
Key changes include rules that could allow the claw-back of bonuses for senior managers for up to a decade after the awards have been issued, as against the current 7 year time limit, if they have been found guilty of misconduct.
Furthermore, senior managers will not be able to receive their bonuses for seven years, while risk managers will not get any of their variable remuneration for five years.
The FCA is introducing the system as part of an effort to improve risk management in the industry and clamp down on short-termist attitudes and irresponsible risk-taking.
Martin Wheatley, chief executive of the regulator, believes this is a "crucial step to rebuild public trust in financial services".
Furthermore, he said it will enable companies and watchdogs to build "long-term decision making and effective risk management into people's pay packets".
Mr Wheatley added that the FCA wants to embed "an accountable culture in the City".
Andrew Bailey, chief executive of the PRA, has also hailed the new framework, arguing that effective financial regulation "involves creating appropriate incentives to encourage individuals to take greater responsibility for their actions".
He said the idea behind the rules is to reward those in positions of responsibility for behaviour that fosters a culture of effective risk management.
Mr Bailey stated that this promotes the "safety and soundness of individual institutions".
Andrew Tyrie, chair of the Treasury Select Committee, has hailed the move as a "step forward", as the last financial crisis saw people walking away from "the mess that they had created with huge rewards". This, he said, occurred "well before the risks matured and it became clear that the rewards were not merited". Mr Tyrie added that this new framework will be judged by whether it can help prevent this scenario occurring again.
Sue Kelly, an Employment Partner at Winckworth Sherwood, commented: "This is a further refinement to the existing rules, so that we now have the toughest regime of any major financial centre on bankers’ pay, according to the Treasury. However, so far, there has been no move to outlaw the common practice of one bank “buying out” the deferred compensation that an employee will forfeit on moving banks, and moving job could prove to be an effective way of avoiding the deferral provisions for some.”