In April 2016, the Bank of England Prudential Regulation Authority (PRA) will close the consultation period on its proposal for the introduction of a new rule on buy-outs of variable remuneration. This relates to what it describes as the “practice whereby firms recruiting staff buy out deferred bonus awards that have been cancelled by their previous employer”.
Its stated purpose is to strengthen the existing remuneration rules in the PRA Handbook, which apply to all PRA-regulated banks, building societies and designated investment firms (subject to its proportionality framework). The overall purpose of this part of the PRA Handbook is to discourage excessive risk-taking and short-termism and encourage more effective risk management. It already includes provisions that require the deferral of variable remuneration to allow firms to withhold deferred payments (malus) and even to claw back payments that have already vested and been paid – for a period of seven years (which can be extended to 10 years in certain circumstances).
