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Cameron backs FSA on ‘reckless bonus’ review

David Cameron has supported the Financial Services Authority’s decision to review banks’ bonus structures but says he will not “bash city financiers” to regulate the markets.

At yesterday’s opening of the party’s annual conference the Conservative leader voiced his support of the FSA’s review of “reckless bonus structures”, saying that “in some cases” these had led people to take very risky decisions.

In an interview with the BBC Cameron said: “I am in favour of free markets, yes, but the market has to be regulated, it needs rules.”

However, at the Labour conference last week he warned: “”What you won’t hear from me this week is sort of easy cheap lines, kind of just beating up on the market system, bashing the fnanciers. It’s not going to pay single mortgage, it’s not going to save a single job.”

The Tory plan shows a marked shift in favour of tougher measures from its previous lighter-touch regulation of the City.

Outlining his approach yesterday, Cameron warned: “We reserve the right to return to the issue of pay and bonuses if the new FSA supervision proves ineffective.”

A spokesman for the FSA said: “The present bonus system places excessive emphasis on the short term performance of individual parts of an organisation; and it encourages the taking of trading positions whose immediate profitability is rewarded, but whose accompanying risk is neither properly recognised, nor disincentivised.

“We need to have comparable incentives – and disincentives – on the market side. I think it entirely appropriate for supervisors, as part of our general assessment of systems and controls, to be interested in compensation and incentive structures, and – just as we take other aspects of a bank’s control philosophy and practice into account – to adjust our assessment of prudential requirements, including capital, for a bank accordingly.”

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