RTTNews - UK's financial regulator, Financial Services Authority on Wednesday introduced a new remuneration code that demand large banks, building societies and broker dealers to follow remuneration policies consistent with effective risk management.
The new code tries to ensure that the boards focus closely to see that firms distribute total amount consistent with the good risk management and sustainability. It also aims to ensure that individual compensation practices provide the right incentives.
Now firms cannot give its staff guaranteed bonuses for more than one year. Also, it is expected that for senior employees, two-thirds of bonuses will be spread over three years.
Hector Sants, FSA chief executive said, The FSA is determined that banks' remuneration policies should be consistent with, and promote, effective risk management. The new rules and code of practice, which will take effect from January, next year, are aimed at achieving this.
Firms are expected to give the FSA with a remuneration policy statement by the end of October. This will have to be signed off by remuneration committees and will assist the FSA in checking its compliance.
The regulator said the firms that fail to comply with these rules would face enforcement action or ultimately, be forced to hold additional capital should they pursue risky processes.
The British Bankers Association welcomed the FSA's new code on remuneration. But pointed out that it would apply only to 26 banks and financial firms operating in the UK. The BBA added that its European partners and the G20 nations should also follow the steps taken by the FSA. The cause of the global financial crisis was not bankers pay, but it was a contributory factor. So it needs to be addressed globally, the BBA said.
Angela Knight, chief executive of the BBA said, Too often in the past, business has moved out of the UK as in various ways our country has become uncompetitive. Many now rightly raise concerns that Britain has lost industry and manufacturing to other parts of the globe.
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