A plan to give the financial watchdog new powers to tear up bank bonus contracts risks jeopardising the UK’s standing as a global financial centre, city figures warned the government yesterday.
Chancellor Alistair Darling is expected to use Wednesday’s Queen’s Speech to unveil plans for a Financial Services Bill that will hand more powers to regulators to stop massive bonuses, reports the Press Association.
The Bill is due to allow the Financial Services Authority (FSA) to cancel contracts that would see bankers pocket excessive bonuses or pay packages that reward undue risk-taking.
The FSA will also be able to require banks to renegotiate remuneration packages which breach its pay code and fine firms that continue to offer unjustifiable sums.
However, City experts have warned that the moves put the UK at risk of losing so-called investment banking “rainmakers” and could threaten its status as a key global financial centre.
He added: “I also think the FSA has enough tools already in order to ensure bonus systems which could be said to threaten the (overall financial) system should not exist.”
Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said further regulation not mirrored elsewhere in the world could see a “brain drain” that would damage a sector which accounts for around 10% of UK gross domestic product.
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The new rules will come into effect next year if the Bill completes its passage through Parliament before the election – which must be held by June 3 – and will affect all new contracts.
They will apply to all UK banks, including RBS, Lloyds Banking Group, Barclays and HSBC, as well as the UK operations of global investment banks such as Goldman Sachs.
