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FSA says bank pay code is tough enough

The FSA has insisted its remuneration code for bankers is tougher than March’s draft code despite claims that it has bowed to pressure from the banking industry.

Last week, the FSA published its code which prohibits multi-year guaranteed bonuses and requires banks to defer two-thirds of senior individuals’ bonuses for three years.

The code eases up on requirements for staff bonuses to take account of the overall performance of a group rather than individual or sector performance.

Only 26 firms will fall under the code, down from an estimated 47 in the consultation paper.

FSA chief executive Hector Sants insists that the regulator has not caved in to pressure from the City. He told the BBC’s The Today Programme last Thursday: “There have been no changes to the substance of the policy. If you take into account that we have been more explicit about the banning of multi-year guarantees, it is arguably a tougher code than the one we published back in March.

“It is not our job to place pay caps on individuals, that is matter for Government and Parliament and should be debated by Government and Parliament. They should not duck the debate by passing it to us.”

British Bankers’ Association chief executive Angela Knight welcomes the code but says unless similar rules are enforced by global regulators, the UK could lose business overseas.

She says: “For this code to succeed, our European partners and the G20 countries must also step up to the plate and do what the UK has done.”

The Financial Services Consumer Panel argues that the code does not go far enough in that it does not require companies to prove their bonus policies reflect the long-term value that senior staff bring to the business.

Chairman Adam Phillips says the code “fails to effectively address the issue of senior managers’ incentives being linked to the performance of the business”.

But Association of British Insurers director of investment affairs Peter Montagnon believes the new version of the code is much more likely to deliver the desired outcome “without excessive compliance burdens”.

Principles of the code

1. Banks must set up remuneration committees that are independent and have the skills and experience to judge the suitability of pay structures in relation to risk

2. Risk managers and compliance officers should have an input in setting pay, with clear, defined procedures in order to manage conflicts of interest

3. Remuneration for risk managers and compliance officers should be linked to the performance of their specific business area

4. Bonus pools should be assessed primarily on profits

5. Where the performance-related pay makes up a significant part of total remuneration, it should be measured by long-term performance

6. Non-financial performance indicators should form part of bonus calculations

7. Long-term bonuses should take into consideration future risks

8. Two-thirds of senior staff bonuses should be deferred for three years

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