Buy-outs – further regulation on recruitment a people risk, or a culture opportunity?

On 28 September the PRA finalised new rules on buy-outs for banks, which are recruitment payments made to an individual to “buy out” awards that they would lose on leaving their old employer. The rules will require significant changes to processes and systems and there are many challenges from a tax, regulatory and legal perspective, which I discuss further here, but there are also some challenging people risks to consider.

Recruitment is an incredibly important and commercially critical part of any HR agenda. First impressions matter, so does speed and a commercially attractive reward package. However, the new PRA rules on buy-outs (and others) will impact a bank’s ability to deliver either.

Think about the Senior Manager Regime. This imposes a number of requirements to map responsibilities, assign named roles and then hand these over to a new employee. More importantly, they require an individual to take personal responsibility (and liability) for something, the full details of which will only be known after they’ve signed up.

Then there’s Certification, too. If the individual is being recruited for a certified role, you will need to ensure that they are certified as a fit and proper person before they can be recruited into that role. Regulatory referencing will also apply requiring firms to take reasonable steps to obtain a 6 years’ worth of references for their staff and keep them up to date.

Now, the new buy-out rules add to this a need to ensure that contractual arrangements are in place to apply malus and clawback to any buy-out, which will partly rely on a previous employer and competitor producing information for you in a timely manner. Taken together, all of this means that there is an awful lot more that you need to think about.

This new information and process heavy world will also require considerable agility particularly when looking to recruit at a senior level and meet the three month window set by the regulator for recruiting Senior Manager roles. Slow, badly thought through systems could therefore create a commercial risk of you being unable to access skilled talent available in the market, or create a bad first impression of you as an employer to talented individuals.

You may also find that the focus of recruitment conversations around buy-outs needs to shift. Previously, it was probably an issue that was raised by the incoming employee, but under the new rules there is a risk that any award of variable remuneration on hire will be deemed to be a buy-out even if you were unaware that previous awards were being forfeited. Now, you may need to be pro-active in asking about outstanding awards, to ensure you don’t fall foul of the new regime.

Of course, there is plenty here that provides tremendous opportunity to firms that can get it right. There are opportunities with these new rules on buy-outs, which could be used to reinforce a culture of individual responsibility and empowerment. But getting the process right has to be the first step.

Katy Bennett
PwC | Director
Office: +44 (0)20 7213 5168
Email: [email protected]


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