The Bank of England is getting even tougher on bankers' bonuses

Protesters dressed as a banker and nurses pretend to fight over a cheque outside the Royal Festival Hall which is hosting the Barclays bank AGM on April 27, 2012 in London, England. It has been reported that Barclays are likely to apologise to angry share holders over multi-million bonus pay deals for senior management. Protesters also demonstrated outside the annual general meeting of Barclays to complain against their financial speculation on world food prices and to demand a financial transaction tax.Oli Scarff/Getty ImagesProtesters dressed as a banker and nurses pretend to fight over a cheque outside the Royal Festival Hall which is hosting the Barclays bank AGM on April 27, 2012 in London, England.

The Bank of England is proposing another new set of rules to govern bonuses paid to bankers and others working in the financial services sector.

In a statement released on Wednesday morning, the Prudential Regulation Authority, the bank’s regulatory arm, put forward proposals designed to close loophole regarding so-called bonus buy-outs.

In its simplest form, a bonus buy-out is when a new employee is paid a bonus by his new employer, to compensate for any bonuses cancelled when leaving his previous job.

The Bank of England said that buy-outs allow bankers to “effectively evade accountability for their actions.”

The buy-out loophole is currently used by bankers to get bonuses that have previously been cancelled when they have been found guilty of wrongdoing — usually in the form of excessive risk taking — by their employer.

Right now, if bankers are found to have misbehaved, banks can take back bonuses that have already been paid out, or refuse to pay out awards that have not yet been paid, using what is known as malus. Under the current rules, however, moving to a new bank allows bankers to skirt round this rule.

Under the proposals put forward by the PRA, bankers could still have their bonuses taken back once they move to a new bank, if their previous employer discovers any wrongdoing.

PRA Chief Executive Andrew Bailey said: “Remuneration policies which lead to risk-reward imbalances, short termism and excessive risk taking undermine confidence in the financial sector. 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.”

Britain has already got some of the toughest rules in the world when it comes to curbing bonuses for wrongdoing. Under the current rules senior banking executives can have their bonuses stripped from them for up to ten years after they’re awarded if they’re found to have committed any wrongdoing.

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