FSA pay rules to hurt thousands
LONDON and Europe will lose out to other financial centres if tough rules on pay are rushed in, City figures warned as the UK watchdog revealed plans to curb bonuses yesterday.
Fears were stoked after the Financial Services Authority (FSA) said it would update its remuneration code to match harsh measures put forward by the European Union in time for January. Hedge funds, asset managers, building societies, stockbrokers and many others will be caught in the crackdown as the regulator widens the scope of its powers on pay from 26 key banks to more than 2,500 financial companies.
In a set of proposals designed to stop “rewards for failure”, the FSA, led by Hector Sants, said:
• at least 40 per cent of bonuses paid to certain “code” staff will have to be deferred over three years;
• a minimum of 60 per cent will have to be deferred when a bonus exceeds £500,000;
• half of any deferred portion will need to be paid in shares or non-cash instruments;
• guaranteed bonuses of more than one year will be banned apart from in “exceptional circumstances”;
• large financial groups will have to set up remuneration committees to look at risk and incentivisation;
• and employees will be forbidden from using personal hedging strategies or alternative vehicles to get around the rules.
Calling for an overhaul of risk and reward culture at “the very top levels of management”, the FSA launched a consultation ending 8 October. It aims to firm up the policy by November and bring in the changes by 1 January.
The regulator tried to soothe jitters by promising to be fair and proportionate in finalising the pay code. It also recognised that “firms currently within the scope of the code have expressed concerns about losing their staff to competitors outside the scope of the code”.
But industry insiders said the FSA and EU’s timetables were too short. Angela Knight of the British Bankers’ Association said: “The issue that concerns us is the industry is much broader than EU-wide. The worry is always that if regions are going to different timetables, the one that does it last becomes a magnet for business.”
Tom Gosling at PricewaterhouseCoopers said smaller firms could be put at a disadvantage: “There is a danger of a two-tier system emerging, between large and small banks, the individuals within them and also between EU and non-EU players.”