FSA FACES FURY OVER ITS BONUSES
THE Financial Services Authority (FSA) is headed for a showdown with MPs after awarding staff a 40 per cent bonus increase despite admitting to having failed in its regulatory duties in the run-up to the banking crisis.
The City regulator doled out staff bonuses last month worth £19.7m, it emerged yesterday, prompting questions from politicians about what FSA employees had done to deserve the hike.
The FSA bonus row comes after it emerged that it anticipated the downfall of Northern Rock in “war games” played in 2004. Despite this foresight, the FSA’s own report into the collapse of the Rock showed that it did not pay enough attention to the warning signs ahead of its actual collapse.
John Thurso MP, a member of the Treasury select committee, said the group of MPs would demand evidence of how the FSA had improved when its chief executive Hector Sants next comes before them.
“If they have brought in better people and they’re doing a good job then that would be reasonable. But at a time when pay restraint is being urged, it sends a dubious message unless the FSA can demonstrate that these bonuses are fully merited and fully justified,” he said.
The regulator warned earlier this year that it would pay out around £20m in bonuses to attract talented staff, despite a period in which its own internal review identified a “systematic failure of duty” with regard to Northern Rock.
But Matthew Elliott, chief executive of the Taxpayers’ Alliance, said yesterday the regulator had not performed well enough to justify the payouts. “It has hardly been a glorious year for the FSA, so the idea that the clowns who work there are getting huge bonuses will surprise taxpayers.” He added that the freeze on pay at many financial groups meant that the FSA did not need to increase rewards by so much to attract staff.
Liberal Democrat Treasury spokesman Vince Cable said the payouts would be “rewards for failure”, highlighting the comparison with below inflation pay deals for teachers and nurses.
Philip Hammond, Conservative shadow chief secretary to the Treasury, added his voice to the criticism, saying that the FSA’s decision on bonuses “seriously undermines its authority to do the job it has been charged with”.
But the FSA pointed to the increased demand for staff skilled in risk management as a factor behind the bonus hike.
“The particular set of skills we need are very much in demand .”