On 13 January 2016, the Prudential Regulation Authority (PRA) published a consultation paper on buy-outs of variable remuneration – CP2/16.

The Bank of England has previously sought views on a number of options for addressing the issue of buy-outs, in which a firm compensates a new employee for any unpaid remuneration that is cancelled when they leave their previous firm. This has the potential to undermine the effectiveness of the current remuneration rules, as the employee could evade accountability for their actions.

The proposed changes will amend the Remuneration Part of the PRA Rulebook and will apply to all material risk takers at PRA regulated banks, building societies and designated investment firms. These changes seek to ensure greater alignment between risk and reward, discourage excessive risk-taking and encourage more effective risk management.

The PRA is proposing a model which allows for the possibility of malus (the withholding or reduction of unpaid awards) and clawback (the recouping of paid awards) to be applied to bought-out awards, based on a determination by the old employer.

The deadline for responses to the consultation is 13 April 2016.