Last week the Bank of England Prudential Regulation Authority and Financial Conduct Authority published new remuneration rules on compensation clawbacks.
The SEC has announced an Open Meeting to consider whether to propose compensation clawback rules under Section 954 of the Dodd-Frank Act, just in time for Independence Day. I will blog on the new proposed rules on Wednesday morning.
Meanwhile, in a related development, last week the Bank of England Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) published new remuneration rules on compensation clawbacks. The UK rules are more similar to Dodd-Frank Act Section 956, which would apply enhanced disclosure and deferral requirements to large financial institutions, than the regular clawback rules under Section 954, for which we expect proposed rules this week. However, regulators in the U.S. are no doubt watching these rules for new ideas.
The new UK rules require the deferral of unpaid incentive compensation and could require the clawback of paid incentive compensation. The changes apply to banks, building societies, and PRA-designated investment firms, including UK branches of non-European Economic Area headquartered firms. Existing rules impose a required deferral period of five years on all Material Risk Takers (MRTs) at the covered firms. The new rules split the MRT population into three separate groups, one with a deferral requirement longer than five years and one with a shorter deferral period:For “senior managers,” the required deferral period for incentive compensation will be seven years, with no awards able to vest earlier than the third anniversary of the award and any accelerated vesting only allowed on a pro rata basis; For “risk managers,” the required deferral period will be five years with vesting no faster than pro rata from year one; and For all other MRTs, the required deferral period will be three to five years with vesting no faster than pro rata from year one.
Additionally, the seven-year clawback period could be extend up to three more years where the firm has commenced an internal inquiry or a regulatory authority has commenced an investigation that could lead to the application of clawback.