Most financial institutions in the UK will be able to escape strict European rules aimed at curbing bankers’ bonuses under a new code issued today by the City watchdog.
In its updated remuneration code, the Financial Services Authority (FSA) said all but the biggest banks will be exempt from certain guidelines laid out last week by the Committee of European Banking Supervisors (CEBS).
The lower-tier firms – including smaller banks, hedge funds and asset managers - will not have to apply a tighter cap on the proportion of bonuses paid in cash, as put forward by CEBS, the FSA said.
The move is likely to anger politicians and union leaders who have called for a more iron-fisted approach to the banks’ bonus culture.
CEBS - made up of representatives from banking supervisory authorities and central banks across the European Union - said its guidelines promoted ``sound and effective risk management''.
Bankers will be allowed to receive only 20% to 30% of their bonus up-front in cash and the rest either deferred or held in shares for a minimum of three years, under the CEBS rules.
But the EU committee said compliance levels could vary depending on the level of risk-taking activity.
As a result, the FSA has chosen not to apply the cash bonus-cap to the majority of the 2,700 UK firms affected by its own code.
Top-tier institutions – including major banks such as Barclays, HSBC and Lloyds - will have to follow all pay reforms put forward by CEBS.
Major banks will not be able to offer guaranteed bonuses beyond one year and the FSA will have the power to take back bonuses paid to senior managers whose risks are later found to have caused losses.
Furthermore, an expectation in the code that firms should apply bonus deferral rules on a firm-wide basis, means in aggregate more banking staff will be affected than previously.
The rules, which will come into force from January 1, were built upon remuneration principles endorsed by the G20 nations last year, but only the EU has written those principles into law.
They are the latest in a line of measures designed to repair some of the damage caused by banks in the financial crisis. Last week, the Treasury published final draft legislation for its new bank levy – which will raise £2.6bn (€3bn) by 2012 through taxing the balance sheets of Britain’s largest banks.