Bankers' bonus buyouts to be blocked by BoE

Currently the buy-out process works by firms compensating newly hired bankers and traders for any unpaid remuneration that was cancelled when they switched jobs.

The BoE's Prudential Regulation Authority argued that this practice had "the potential" to undermine its remuneration rules as by buying out the cancelled bonus, the new employer could insulate an individual who may later be found to have erred in his or her previous job.

This would make it difficult for "ex-post risk adjustments" through withholding or reducing unpaid awards, known as malus, or recouping paid awards, known as clawback.

“Having the right incentives is a crucial part of an effective accountability regime. Remuneration policies which lead to risk-reward imbalances, short termism and excessive risk taking undermine confidence in the financial sector," said Andrew Bailey, deputy governor for Prudential Regulation and CEO of the PRA.

"Individuals should be held accountable for their actions and not be able to actively evade the consequences of their actions. Today’s proposals seek to ensure that individuals are not rewarded for bad practice or wrong-doing and should help to encourage a culture within firms where reward better reflects the risks being taken."

The clawback rules were finalised in July 2014 and came into effect from 1 January 2015, with clawback of awards up to a maximum of seven years after they are awarded.