A crackdown by the Financial Services Authority on “fat cat” city bonus structures is being backed by the government.
Lord Adair Turner of Ecchinswell, who starts his role as the new head of the Financial Services Authority today, has said he will take urgent action to curb “irresponsible” reward structures.
He is being backed by Prime Minister Gordon Brown, who has also called for more international regulation of top level reward schemes in the financial sector.
Lord Turner said it was important to look closely at the nature of firms’ reward schemes, but accepted that it was not appropriate for regulators to set pay structures.
He warned against firms storing up a “toxic problem” for the future by paying out bonuses before they are sure the profits are really there.
An FSA spokesman said: “It is important to stress that it is not the role of the regulator to set individual bonus or remuneration but we want to ensure the framework protects against incentivising short term performance without regard to long term risk.”
Regulators have already been at work in the city, placing bonus schemes under scrutiny under plans outlined by former FSA chief executive Hector Sants and Callum McCarthy a few months ago.
The FSA has been asking boards to consider the effects of incentive and remuneration structures.
A spokesman said: “We are now conducting some thematic work looking into this area, to further strengthen the risk assessment framework we use with firms.
“In practice, we are currently undertaking a series of visits to individual banks in connection with their remuneration practices.
“We want to ensure that remuneration policies form an integral part of sound risk management practices.
“These will be individual discussions as individual banks will operate individual pay and bonus structures.”
The move is backed by Gordon Brown, who also called for more international regulation.