Financial Services Authority sets out new rules on banking sector remuneration

The Financial Services Authority (FSA) has said that employers could be financially penalised if they fail to comply with its proposed new plans on remuneration in the banking sector.

In its review of the global banking crisis, the FSA said pay policies, and forms of remuneration such as bonuses will be more heavily scrutinised to ensure they are reflective of performance and discourage risky behaviour. Firms that do not comply could be forced to put more capital aside to account for their risks.

The review, conducted by chairman of the FSA Lord Turner, also noted that high levels of remuneration in banks, particularly high bonuses paid to executives and traders involved in trading activities which generated large losses, had been subject to intense public focus during the financial crisis.

It said remuneration should reflect an individual’s record of compliance with risk management procedures, rules and appropriate culture, as well as measures of performance.

Furthermore, the report suggested bonuses, which exceed a significant level, should be deferred for a period that is appropriate to the nature of the business and its risks.

The Trades Union Congress (TUC) has welcomed the proposals but said they did not go far enough. Brendan Barber, general secretary at the TUC, said: “The problem with bonuses and rewards is not simply that they encourage risk but represent a wider culture of greed where top bankers think they have a divine right to earn squillions more than the rest of us. We need a wider review.”