UK financial watchdog issues bonus warning

July 21, 2009

    LONDON, July 20 (Reuters) – Britain’s financial watchdog has warned banks that guaranteed bonuses that last longer than a year will break proposed rules on remuneration due to come into force next January.
   The Financial Services Authority said in a letter sent to the chief executives of around 45 of London’s largest banks and brokers that any bonus deals of this kind agreed after a consultation on pay that began on March 18 would be barred by the new code.
   The FSA consultation, which has now closed, was prompted by the banking crisis last year which many believe was fueled by short-term pay incentives that encouraged bankers and traders to take excessive risk.
   “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,” FSA Chief Executive Hector Sants said in the letter.
   “I would draw your attention to the fact that guaranteed bonuses which run for a period of more than one year may be inconsistent with effective risk management.”
   He said financial institutions would have to give the FSA information on their pay plans by the end of October so that the regulator could check they complied with the proposed rules.
   The letter, dated July 15, was published by the regulator on its website on Monday.
   Last week former Morgan Stanley executive David Walker said in a review of bank governance that executive bonuses should be awarded over a five-year period. (Reporting by Tim Castle; editing by Carol Bishopric) ((; +44 207 542 7947; Reuters Messaging: Keywords: FINANCIAL PAY/ 
Tuesday, 21 July 2009 01:47:54RTRS [nLL336435 ] {C}ENDS

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