FSA AND TORIES AT WAR OVER BONUSES
THE FINANCIAL Services Authority (FSA) and the Tories were at loggerheads last night over the regulator’s plans to reform bank bonuses.
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.
But the City watchdog hit back, saying it had not “withdrawn an inch” from its earlier plans, drawn up in the immediate wake of the banking crisis.
“Our remit is to ensure that the large banks we supervise put in place remuneration policies that incentivise people not to take excessive risks,” said a spokesman. “And we have the tightest set of regulations on remuneration in the world.”
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’s general election, said: “The FSA has pulled its punches, leaving the promises of the Prime Minister and others to curb excessive bonuses absolutely worthless.”
“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,” he added.
The FSA’s final rules – which were first proposed in a March consultation paper – were altered, downgrading some rules to “guidance”. This came after they were opposed by 47 respondents to the consultation.
Instead, the FSA issued “good practice” 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.
A rule that could have seen firms forced to cut bonuses entirely if they booked a loss was also toned down.
Angela Knight, chief executive of the British Bankers’ Association, warned the FSA had acted too hastily in its efforts to be tough on bonuses.
“The real problem is that no other country is putting in place the same sort of regulatory requirements as the FSA has outlined today,” she said.
However, director general of the CBI Richard Lambert welcomed the FSA’s approach.
He said: “The FSA is right to focus on overall pay structures and on ensuring that they do not encourage excessive risk taking.”