Guaranteed bonuses will breach new codes warns FSA

The Financial Services Authority (FSA) has warned UK financial institutions that guaranteeing bonuses for more than 12 months could mean they are breach of new rules and risk harsh penalties.

In a letter to the heads of British banks, chief executive, Hector Sants, said the regulator is determined to “to align remuneration policies, procedures and practices to ensure they are consistent with and promote effective risk management”.

“It is essential that the market should not revert to remuneration practices that would be incompatible with our intended outcomes if the rule and code become effective next year,” added the FSA.

Banks have been informed they have to supply remuneration policy statements by the end of October. These will be checked to ensure they are compliant with proposals due to be implemented in January next year.

Bank bonuses have been the subject of heavy criticism of late since it is banks that are being blamed for the recession.

A recent report commissioned by the Government has suggested that bank bonuses should come under stricter control and that better training should be required for non-executive directors.

The Walker Review, led by Sir David Walker, has called for greater transparency in the banking sector for the salaries of higher earners and enhanced shareholder involvement. In compiling his report, Sir David consulted with investors, experts in regulation and banking, and the banks themselves.

Prime Minister Gordon Brown added that his Government would be introducing new rules on pay and bonuses.

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