Wednesday 12 August 2009

FSA and the Bonus Culture: the Boy Done Good ?

The FSA’s new regime for City bonus schemes is being reported widely as a partial climb-down. But that’s unfair, and it’s not the point: there’s enough meat left for them to chew on long and hard – if they’ve the will. And that’s the key.

The FSA doc starts with a pithy summary of all that’s wrong – so the correct issue is squarely on the table. The substance of their response is sound: a ‘general rule’ linking remuneration with risk management, plus some principles and guidance. As we’ve long advocated, the sanction is via linkage to capital adequacy requirements. Interestingly, the FSA is planning to go further (and faster) than the altogether less clever EC proposals, although both regimes are headed in broadly the same direction.

The trouble, as ever, lies in the degree of regulatory ambition. Despite protestations of determination, there is leisurely implementation timetable (why not demand compliance right now ? – nothing you are proposing goes beyond commonsense, or beyond what enlightened shareholders should already be demanding), and an early admission of weakness:

Our Remuneration Code is not going to change the ‘bonus culture’ overnight

Why not ? You have the principles, the power, and broad public support.

Well, we know the answer. Because you also have a craven government at your back, when what you need is resolute top-cover for some determined action.



Sebastian Weetabix said...

As a non-city person, I am puzzled at this argument that not having telephone number bonuses will drive away talent. Since this "talent" has indulged in massive risk taking which has caused large numbers of banks to collapse, why the effort to keep it?

Nick Drew said...

some of the talent is indeed quite smart

and senior management / Boards have let them run riot, they wouldn't know how to unwind a lot of the positions

the talent will do whatever they are incentivised to do: so give 'em the right incentives !

Letters From A Tory said...

It's too dangerous to attack the banks again after what they've put up with recently. The PM needs them to start lending again and forcing new regulations on them will not make them very happy.