The Financial Services Authority, Britain’s financial industry regulator, published eight provisions to rein in pay at about 26 UK-based banks. The FSA code attempts to stop bankers from receiving bonuses that are large multiples of annual salary and guaranteed bonuses for more than a year reports Bloomberg. FSA CEO Hector Sants says banker compensations must “promote effective risk management.” A bank will be required to hold more capital if its pay structure is considered too risky. The FSA faced pressure over whether its code was too prescriptive or provisional, opting for the latter. Peter Montagnon, Director of Investor Affairs at the Association of British Insurers supported the final eight provisions and stated “we support the proposal that bonus pools should be formed only after taking into account the cost of capital, adjusted for risk.” The U.K. banks are expected to show the FSA by October how they are going to comply with the rules, which come into effect in January. FSA CEO Sants highlighted the agency’s response as the first in a global effort to rein in risky compensation practices. The European Union is expected to publish its rules by the end of 2010. Global lawmakers pledged at the Group of 20 Nations’ summit in April agreed that bonuses incentivized traders to take too much risk and banks couldn’t get the money back if traders’ bets backfired.
FSA Publishes Financial Industry Compensation Code
The FSA has published a code of best compensation practice to go into effect in January.
August 12, 2009