THEFinancial Services Authority will have the power to tear up pay and bonus contracts that violate its guidelines under planned legislation to be unveiled as part of the Queen&rsquo;s Speech onWednesday.<br /><br />Lord Myners, the City Minister, claimed yesterday that allowing the regulator to render void some contracts would prevent excessive risk-taking from threatening the stability of the financial system. &ldquo;We&rsquo;re seeking to de-risk the system&rdquo;, he said.<br /><br />In a fresh development which will trigger debate on trading floors this morning, he added that top executives at the large banks are &ldquo;very keen that we should do these things.&rdquo; He implied that bank CEOs wanted the government&rsquo;s assistance to help them clamp down on costs and &ldquo;out of control&rdquo; bonuses &ndash; and hence boost profits.<br /><br />Earlier this year, the FSA said that bonuses should not be based solely on performance in the current financial year &ndash; with bank profits subject to cycles &ndash; and that around two-thirds of them should be deferred over at least three years. It also encouraged greater use of equity rather than cash and pledged to ban guaranteed bonuses not linked to performance. The new rules apply to large financial firms and not to hedge funds and other firms.<br /><br />There are no actual limits on individual compensation. &ldquo;We&rsquo;re not capping bonuses because once we start capping bonuses in one sector, we&rsquo;re on to a slippery slope,&rdquo; Myners said. <br /><br />But there was scepticism about the reforms last night after it emerged that they would affect only those staff recruited after 1 January next year, that only 1,000-5,000 bankers currently have contracts that are not in conformity with the rules and that some banks could escape the rules.<br /><br />And the banking industry, opposition politicians and headhunters said they could put the UK at a disadvantage to other countries. British Bankers Association chief executive Angela Knight said: &ldquo;What would be the wrong result here is if we start to lose banks from the UK and render our banks uncompetitive.&rdquo;<br /><br />Tory shadow secretary to the treasury Philip Hammond said the FSA already had powers to clamp down on bonuses, but had failed to use them.&nbsp; &ldquo;This is simply an announcement to grab the headlines,&rdquo; he said.<br /><br />Recruitment firm Hamilton Chase&rsquo;s Phil Marks said the regulations may make it more difficult for the banks to recruit talented staff. &ldquo;This is a typical vote-chasing reaction by the government,&rdquo; he said. <br /><br />In addition to the bonus rules, the government will on Wednesday unveil plans for living wills in which the banks work out in advance how they can be wound down gently in the event of failure. There will also be new provisions for class action lawsuits against retail banks accused of misselling products.<br />