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| Version 3 | Version 4 |
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| Banks given new rules on bonuses | Banks given new rules on bonuses |
| (31 minutes later) | |
| New rules on how financial institutions should determine pay and bonuses for staff have been set out by the Financial Services Authority (FSA). | New rules on how financial institutions should determine pay and bonuses for staff have been set out by the Financial Services Authority (FSA). |
| It wants to see bankers' pay deals linked far more closely with the long-term profitability of the banks. | It wants to see bankers' pay deals linked far more closely with the long-term profitability of the banks. |
| The FSA says that bonuses should not be guaranteed for more than a year, and that senior employees should have their bonuses spread over three years. | |
| Many believe that big bonuses led to excessive risk-taking at banks. | Many believe that big bonuses led to excessive risk-taking at banks. |
| The new code is designed specifically to discourage short-term risk-taking, which many argue was an important factor in triggering the financial crisis. | |
| 'Right incentives' | 'Right incentives' |
| "The FSA is determined that banks' remuneration policies should be consistent with, and promote, effective risk management," said Hector Sants, head of the FSA. | "The FSA is determined that banks' remuneration policies should be consistent with, and promote, effective risk management," said Hector Sants, head of the FSA. |
| The FSA said there were two main objectives behind the code of practice. | The FSA said there were two main objectives behind the code of practice. |
| First, to ensure that boards focus more closely on making sure that "the total amount [of pay and bonuses] distributed by a firm is consistent with good risk management and sustainability". | First, to ensure that boards focus more closely on making sure that "the total amount [of pay and bonuses] distributed by a firm is consistent with good risk management and sustainability". |
| And second, to ensure that overall pay, including bonuses, "provides the right incentives". | And second, to ensure that overall pay, including bonuses, "provides the right incentives". |
| To this end, eight principles have been added to the FSA's financial regulation handbook. | To this end, eight principles have been added to the FSA's financial regulation handbook. |
| In particular, these make clear that bonuses should only be guaranteed for 12 months, and that senior employees will see two-thirds of their bonuses paid out over three years. | |
| Mr Sants said the new rules would take effect from January 2010. | Mr Sants said the new rules would take effect from January 2010. |
| The FSA wants banks to submit their remuneration policies to it by the end of October. Firms that do not comply with the code "could face enforcement action", or be forced to hold more cash in reserve should they want to pursue risky strategies. | |
| Relocation concerns | |
| The FSA launched a consultation in February looking at measures to discourage excessive risk-taking, and published a draft version of the code in March. | |
| Bankers expressed concerns that the proposed measures on bonuses, some of which have been included in the final code, would encourage institutions to relocate employees outside of the UK, to get round the new rules. | |
| This could have serious implications for the City's position as the world's leading financial centre, and for the UK's tax take, bankers argue. | |
| However, recently there have been concerns that large bonuses are returning amid a boom in profits from investment banking. |