BKM204400 - Bank compensation restriction: disclosure condition: example – time limits

Bank E is preparing its first set of computations following the commencement of the compensation restriction and is considering which compensation expenses in the current year relate to issues previously disclosed.

Where specific disclosure in not required, Bank E does not make a disclosure in its accounts.

Bank E identifies £65m of compensation expenditure which is not disclosed in its accounts. This relates to three classes of issue.

• Issue 1 was first disclosed five years previously. Since then, E has paid out around £35m each year dealing with compensation on the same issue, and consequently has been required to make a disclosure in each year’s accounts. In the current year, the expense is £4m which is not sufficiently material for the bank to make a disclosure
• Issue 2 was first disclosed three years ago, when a large expense was recognised with an accompanying disclosure. No expense was recognised until the current year, when £2m of expenses have been recognised in respect of the same issue. As with issue 1, this is not sufficiently material to require a specific disclosure.
• Issue 3 was first disclosed ten years ago. Since then, some smaller amounts have been paid out, none of which have been material enough to require disclosure. In the current year, there is a similarly small amount which does not require explicit disclosure.

The legislation sets a clear five year time limit for disclosures. Both issue 1 and issue 2 will still be within scope, despite the fact that there is no disclosure in the current year. Issue 3 will no longer be in scope.

If Bank E had chosen to make a disclosure each year in respect of Issue 3, the expenditure incurred in the current year would not be deductible. The test is whether an actual disclosure was made even it could be argued that doing so was not strictly required