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PRA consults on clawbacks for vested awards

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14 Mar 2014

The Prudential Regulation Authority (PRA) has issued a consultation proposing to extending the Remuneration Code in SYSC 19A of their handbook to require all PRA-authorised firms to amend employment contracts to enable them to apply clawback to vested variable remuneration. The proposals, which would come into force on 1 January 2015, also serve the purpose of clarifying PRA expectations as to how they expect companies to comply with the clawback provisions.

The PRA propose that a firm should be able to clawback vested variable remuneration when: 

there is reasonable evidence of employee misbehaviour or material error;

the firm or the relevant business unit suffers a material downturn in its financial performance; or

the firm or the relevant business unit suffers a material failure of risk management. 

The proposals would require that firms amend employment contracts to allow for the application of clawback to all vested awards up to six years after vesting. 

The proposals would not be limited to employees directly culpable of misfeance and may apply equally to those employees whom a company deems are indirectly responsible or accountable for a material failure of risk management or misconduct by virtue of their role or seniority. 

The PRA has recently made a number of changes to their handbook to incorporate the remuneration provisions contained within the EU Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR). 

Comments on the consultation ‘CP6/14 Clawback’ are invited until 13 May 2014. 

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