FSA eyes tougher rules on bonuses

LONDON (Reuters) - The Financial Services Authority (FSA) regulator is planning tougher curbs on bankers' bonuses following plans by the European Union to clamp down on remuneration in the sector following the credit crisis.

The FSA said Thursday it would launch a formal consultation process over the planned changes but added that its existing code on remuneration would be strengthened.

The new code from next January would demand that at least 40 percent of a bonus should be deferred over a period of at least three years for certain key staff. At least 60 percent of the bonus should be deferred when the bonus is more than 500,000 pounds.

The current code, which applies to Britain's largest banks, building societies and broker dealers, would also be widened to apply to all banks, building societies, hedge funds and asset managers.

On July 7, the European Parliament approved what are seen as the world's toughest curbs on bank bonuses, and EU member states, which have joint say, are set to endorse the new law.

The proposed EU rules would stipulate that the maximum amount of upfront cash in a bonus should be 30 percent, while for large bonuses it will be capped at a fifth.

EU states want to allow 40 percent of a bonus to be paid upfront, and a deal on a definitive figure is expected later this year.

"We will see what the final text says and apply it appropriately," an FSA spokeswoman said.

The new regime, which goes further than American rules agreed on in June, would be the first cap on how bankers are paid and a victory for EU lawmakers who have otherwise become bogged down in efforts to regulate banking.

A new watchdog for European banks would define what is a big bonus, and the bonus cap would ensure bonuses are linked to long-term performance rather than being cash rewards for short-term risk-taking.

There would also be a clawback of bonuses, meaning a star trader, for example, would not get the full payout if his investments unravelled.

(Reporting by Sudip Kar-Gupta, editing by Will Waterman)