LONDON Tougher guidelines on financial sector pay are under consideration by the UK watchdog, though extending a cap on banker bonuses to the wider industry looks a step too far, a top regulator told UK MPs on Tuesday.
Under new European Union rules, banker bonuses can be no higher than an individual's fixed salary, rising to double that level if shareholder approval is obtained.
Financial Conduct Authority (FCA) Chief Executive Martin Wheatley told MPs the watchdog's remuneration code for banks and building societies would be reviewed.
"We are consulting on the remuneration code later this year and a big consideration is whether and how far the code we have needs to be extended," Wheatley told the Treasury Select Committee.
Pressed by MPs on whether the cap on bonuses should be applied to insurers and asset managers, Wheatley replied: "It sounds to me disproportionate."
Britain is challenging the bonus cap in the EU's top court, saying it in practice makes it harder to curb excessive pay and hampers a bank's ability to cut costs when markets turn sour.
Wheatley said the cap, which will hit bonuses awarded in early 2015 and onwards, was already having "perverse" effects by prompting banks to bump up basic salaries or take other measures in anticipation of the measure coming into force.
"People are finding ways to pay cash amounts to move outside the caps being constructed," Wheatley said. "The reaction has been self-defeating and it has put up (the) fixed costs of firms. It's not an ideal outcome."
The cap will also make it harder for regulators to claw back bonuses, though it would not damage the City of London as a leading financial centre as some have argued, he said.
Wheatley is trawling through banks' plans to award bonuses for 2013, checking if they reflect poor conduct at several lenders, such as fines for mis-selling financial products and rigging benchmark lending rates.
Banks including Barclays, Lloyds and RBS have been subject to substantial fines for various transgressions in recent years.
"Real money has been clawed back," Wheatley said, without being more specific about which banks or individuals had been affected.
MPs asked if senior managers at Lloyds would have their bonuses clipped following the bank's record 28 million pounds fine in December for the way it encouraged staff to sell 2 billion pounds of products that customers did not need.
Wheatley said the "whole concept of clawback" was that people involved in bad decisions should suffer the consequences of their actions.
(Editing by David Holmes)