LONDON (Reuters) - The Financial Services Authority on Wednesday banned guaranteed banker bonuses for more than one year as part of a global crackdown on a culture of excessive risk-taking that has destabilised economies.
The financial regulator, which has been slammed for failing to spot problems that led to the near collapse of the financial system last October, said two thirds of banker bonuses should be spread over three years.
In a new code on banker pay, which has been published amid signs of a resurgence in fat bonuses, the FSA said banks could face higher capital charges or enforcement action if they failed to comply with the new rules.
While the FSA is urging banks to take into account risk and long-term performance when determining bonuses, it stopped short of setting actual pay levels. Banks have warned that such a move would encourage top executives to move abroad.
The regulator also dropped demands, outlined in its original proposals published in March, that deferred pay should be linked to a company’s future performance.
“The FSA is determined that banks’ remuneration policies should be consistent with, and promote, effective risk management,” FSA Chief Executive Hector Sants said.
Policymakers across the world are seeking to rein in banking remuneration in a bid to stop what they see as excessive risk-taking that helped trigger the worst financial crisis since the Great Depression.
The Group of 20 (G20) leading world economies agreed in April on a broad set of principles on bankers pay, saying it expected “material progress” in their implementation by the 2009 bonus round. Progress will be reviewed at a summit in September in Pittsburgh.
The G20 principles state that firms must demonstrate to regulators that their remuneration policies are sound.
French Economy Minister Christine Lagarde wants the Pittsburgh summit to beef up the G20 principles, saying it was an “absolute disgrace” that guaranteed bonuses for several years could still be paid.
British and continental European regulators have said that bonuses should be linked to long-term profitability, with claw-back provisions and threaten banks that fail to comply with the possibility of higher capital requirements.
Reporting by Kirstin Ridley; editing by Karen Foster