The PRA has published Consultation Paper 2/16: Buy-outs of variable remuneration (CP2/16).
In CP2/16 the PRA sets out a proposal for the introduction of a new rule on buy-outs of variable remuneration, relating to the practice whereby firms recruiting staff ‘buy-out’ deferred bonus awards that have been cancelled by their previous employer.
The PRA believes that the practice of buy-outs undermines the effectiveness of malus and clawback. By moving employers and having their cancelled bonuses ‘bought-out’, individuals are effectively able to insulate themselves against an ex-post risk adjustment of their past awards as risks crystallise or the consequences of poor risk management emerge at their old employer. The proposed rule is intended to address this gap and ensure that the practice of buy-outs does not blunt the existing rules on malus and clawback or allow employees to avoid the proper consequences of their actions.
The deadline for responses to CP2/16 is 13 April 2016.
The FCA will closely follow feedback to the PRA’s consultation and the changes proposed by the PRA. It will consider at a later stage whether it is appropriate to apply any rules on buy-outs more widely across the FCA solo-regulated population. The proposals set out in the PRA consultation paper would thus only apply to material risk takers at PRA-regulated firms.
View PRA’s consultation paper CP2/16: Buy-outs of variable remuneration, 13 January 2016