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City regulator Hector Sants today warned London-based banks that they should not return to their “bad old ways”, paying top staff huge bonuses or guaranteed bonuses without ensuring it is totally safe to do so.
Launching the Financial Services Authority's new regime for financial services bonuses, he said: “In recent months there has been a clear danger of the City returning to the ways it employed in the good old days. We will ensure this does not happen and are determined to robustly enforce that.”
By the end of October the top two dozen banks, building societies and broking firms will have to deliver the City watchdog their remuneration policy fitting today's rules.
These include ensuring senior staff receive two thirds of their bonus over three years, banning guaranteed bonuses which run for more than single year and ensuring that the total bonus pool declared by any firm is “consistent with good risk management”.
From November firms can expect “robust on-site visits” from the FSA demanding to see that individual contracts comply with its rules, Sants promised.
He denied earlier reports that today's rules were a “watered-down” version of the draft rules issued in the spring. Although they now cover 26 rather than 47 institutions Sants said they were “not materially different” to the original proposals.
Today's plans were broadly welcomed by London banks. One senior banker said: “This is a pragmatic result. I'm pleased that the FSA has recognised the competitive need for bonuses in our world. We have always said that bonuses should be performance related, risk adjusted and have an element which is deferred.”
Angela Knight, chief executive of the British Bankers' Association, said: “Broadly this links pay and risk together and we are fine about that. There are also real teeth to this code, which the FSA will police and enforce.”
London banks had argued that proscriptive rules on bonuses would make it far harder to recruit and attract good staff in a global market. Neither US nor European regulators have yet come up with as strict rules as the FSA, whose rules come into force in January.
Leaders of the G20 nations are due to update their plans for restricting bankers' bonuses at their meeting in Toronto next month. Sants said if the international regulators got bogged down he would have to review the FSA policy and timing of its implementation.
Knight said: “Other countries, including our EU partners, must now stop talking and start taking action.” Chancellor Alistair Darling has favoured a hardline approach on bankers' pay and bonuses in the wake of the two-year banking crisis. Sants rejected any idea that it was the regulator's job to police what some people see as immoral large fat-cat payouts to individuals.
Reader views (15)
When a good proportion of the country struggles on £30k per annum or less and has to work darn hard for it, you can understand why there is so much anger building in the community. The recession will not end while the rich get richer and the poor get poorer. For the love of god bring some sense into salaries and bonuses before it spills over into civil unrest, strikes and a breakdown of public services. Oh wait a minute....we already have two of those don't we.
- Les Burdett, Bristol, England, 27/10/2009 13:50
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Here we go again. Greedy bankers lining their greasy pockets with obcene bonuses. They just don't get it. They better have mesh protecting their house windows and better not park their cars in the street
- Trevn, Abu Dhabi, 27/10/2009 12:50
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To believe that the FSA is capable of applying effective remuneration disciplines to the banks and financial sector is akin to believing that the strategic and tactical objectives of the Parachute Brigade should be subject to scrutiny by the Boys' Brigade!
- Peter- Ipswich, Ipswich UK, 27/10/2009 12:50
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The FSA's response is typically weak, not surprising following consultation with the banks it i smeant to be policing. It is imperative that the FSA, the Bank of England and the government work with European and US regulators to reform how key bank employees are rewarded.
It is not simply a matter of aligning rewards with the long-term interests of shareholders, rather than the short-term interests of the bank executives themselves. They must also recognise the interests of all commercial organisations, charities, public bodies and private individuals, as stakeholders in the macro-economy the banks have trashed with their greed and incompetence. Bank rewards MUST align their performance with these interest groups, too.
- Tim Douglas, London, UK, 27/10/2009 12:50
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The Financial Services Authority is once again in full action, showing its old lack of power, authority, and biased foul-play; one step forward; and four steps backward Great Britain.
You ain’t seen nothing yet you taxpayers; just wait till after the election; you will get slaughtered by the old school boys.
- Mickinlondon, london., 27/10/2009 12:50
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How come these guys are worth so much when they lost us a fortune ? Their "success" is illusory but serves to continue the status quo. The worst error is to give an addicted gambler and loser a second chance. Now they know that whatever they do they will be protected as the governments are scared of them. Will the government please guarantee that I will be rescued if I go down to the bookies?
- Terry, Hennebont France, 27/10/2009 12:50
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1. Hornby works for a private company who can do what they like. 2. plenty of banks and bankers did not take government money (e.g. Santander) so there's no reason why their bonuses should be controlled. 3. bonuses = income = 50% tax. Doh! 4.the banks are partly culpable but bear in mind that people borrowed the money the banks lent. so the public is partly to blame.
- Peter Bench, London, 27/10/2009 12:50
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Is anyone still fooled by this Gov't spokesperson's cringing, hand-wringing 'appeal' to the Banker's sense of fair play and justice? -If this, or any other Gov't wants to be taken seriously about wiping out greed and corruption from banks and other financial institutions in this country, there's only one realistic answer left. -Legislation! And if the 'hot-shots' threaten to leave Britain for more money, -advertise the jobs. -I'm sure there would be plenty of suitable applicants for salaries of 100K and upwards.
- Tony H, Cumbernauld Scotland, 27/10/2009 12:50
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Here is a bonus. You pay a Banker the correct amount for doing the job. If they fail to do a good job then they are fired. Good enough incentive? it's what the rest of us have to do. As for they will be poached, pull the other one, if they can't do the job no one will want them.
- Ayliff Mcnab, Spain, 27/10/2009 12:50
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Carry On London. Nothing has changed. Nothing will ever change, not where MP's and bankers are concerned.
MONEY, MONEY, MONEY.
THE FSA HAS ABOUT AS MUCH CREDIBILITY AS A PREGNANT PIG.
- Reuben Camara, Republic of Morecambe, UK, 27/10/2009 12:50
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Sants symbolises everything that is wrong with the banking and financial "services" industry. He is too gutless and spineless to deal with fellow reckless, feckless, feculent fraudsters. It's the "I'm alright Jack" syndrome from which the UK has never moved from, since the end of WW2.
It is also a very privileged club, where Oxbridge, Harvard MBA, McKinsey connections dominate. How is it that Hornby can land upright at Boots (alongside that Australian interloper joke MP Patricia Hewitt, ex Andersen Consulting - as was, before Enron - and banned by Margaret Thatcher from bidding for State contracts following their incompetent handling of the de Lorean factory scandal in Belfast which cost UK PLC £60M). The same Hornby who destroyed HBOS and caused massive financial damage to the UK, is now MD of the Boots Group. The CEO, an Italian, described Hornby as "a person of huge experience and talent" or words to this effect. You could apply the same opinion to Mr Madoff, the PONZI expert. And so on. Why is Applegarth, the destroyer of Northern Wreck, still footloose and fancy free? For a laugh, check out his entry on LINDEK-IN (www.linkedin.com. Zero mention of the financial destruction he engineered there).
And now we are at the mercy of Mandelson - unelected but in charge of more than half of the Government Departments. Great pity we don't have the guts of the French electorate, particularly the "sans culottes" of the 1790's.....
- David Low, Cirencester, UK, 27/10/2009 12:50
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If the Lib Dems want to win the election,this is their best chance.One,tax bonuses at 95%, Two,remove council tax for the over 65s and three get the UK out of their Veitnam war ,which will save billions.
- David, london, 27/10/2009 12:50
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Why isn't the money that is being put aside for bonuses, being used to repay the stupendous amounts of PUBLIC money used to bail out these parasites?
- Lezli Taubler, London/England, 27/10/2009 12:50
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Which explains why the FTSE 100 went up despite plunging employment - disaster ensues.
- Wallytrader, London, 27/10/2009 12:50
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it can be rightly argued that the banks are the most socialist of all organisations. They share a very high proportion of the profits with their employees as opposed to the providers of capital. Personally I find this quite a good model...
- Martin_Clerkenwell, london, 27/10/2009 12:50
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