THE FINANCIAL Services Authority (FSA) and the Tories were at loggerheads last night over the regulator&rsquo;s plans to reform bank bonuses.<br /><br />The FSA, which published its final remuneration code yesterday, faced claims that it had watered down its proposals in the face of pressure from City bankers.<br /><br />But the City watchdog hit back, saying it had not &ldquo;withdrawn an inch&rdquo; from its earlier plans, drawn up in the immediate wake of the banking crisis.<br /><br />&ldquo;Our remit is to ensure that the large banks we supervise put in place remuneration policies that incentivise people not to take excessive risks,&rdquo; said a spokesman. &ldquo;And we have the tightest set of regulations on remuneration in the world.&rdquo;<br /><br />But shadow chancellor George Osborne, who plans to abolish the FSA and hand its supervisory powers back to the Bank of England if his party wins next year&rsquo;s general election, said: &ldquo;The FSA has pulled its punches, leaving the promises of the Prime Minister and others to curb excessive bonuses absolutely worthless.&rdquo;<br /><br />&ldquo;Banks need to be told the support provided by the taxpayer is there to rebuild their balance sheets and resume normal lending; it is not there to help with mega payouts to bankers,&rdquo; he added.<br /><br />The FSA&rsquo;s final rules &ndash; which were first proposed in a March consultation paper &ndash; were altered, downgrading some rules to &ldquo;guidance&rdquo;. This came after they were opposed by 47 respondents to the consultation.<br /><br />Instead, the FSA issued &ldquo;good practice&rdquo; rules which advise against multi-year bonuses and recommend that the majority of bonuses are deferred for three years to ensure that staff are focused on long-term success.<br /><br />A rule that could have seen firms forced to cut bonuses entirely if they booked a loss was also toned down.<br /><br />Angela Knight, chief executive of the British Bankers&rsquo; Association, warned the FSA had acted too hastily in its efforts to be tough on bonuses.<br /><br />&ldquo;The real problem is that no other country is putting in place the same sort of regulatory requirements as the FSA has outlined today,&rdquo; she said.<br /><br />However, director general of the CBI Richard Lambert welcomed the FSA&rsquo;s approach.<br /><br />&nbsp;He said: &ldquo;The FSA is right to focus on overall pay structures and on ensuring that they do not encourage excessive risk taking.&rdquo;