Bonus Clawback Proposals

In March the Prudential Regulation Authority ("PRA") issued a consultation paper on its proposals to extend the Remuneration Code so that PRA-authorised firms will be required to include clawback provisions in employment contracts. The PRA is proposing that all vested variable remuneration awarded on or after 1 January 2015 will be subject to clawback and that employment contracts are amended to enable this. Under the proposals clawback would apply in line with the requirements on malus, i.e. if there is reasonable evidence of employee misbehaviour or material error, or if the firm or business unit suffers a material downturn in its financial performance or if the firm or business unit suffers a material failure of risk management. As for malus, the PRA also does not want clawback to be restricted to those directly culpable of malfeasance. Therefore, where an employee is indirectly responsible by virtue of their seniority or where they could have been reasonably