UK: the FSA and bankers' bonuses

The chief executive of the Financial Services Authority, Hector Sants, was interviewed yesterday on the BBC1 Andrew Marr Show. Mr Sants explained the role of the FSA with regard to the regulation of bonus payments:

… our job is to make sure that banks in their compensation policies, in their bonus policies do not put those institutions at risk, which was what happened in the past. They do not pay out when they should not be paying out, they do not pay out when they have not made those profits. We can certainly ensure that that does not happen again. We can say to them if they pay out or threaten to pay out more than they should do, we will increase the amount of capital they hold and take enforcement action. The question of the size of individual payments is not one for financial regulators. That is one for politicians and society as a whole. If politicians wish to take a view on that, then they should say so, but they should not be asking the regulator to carry out a pay policy. Our job is to make sure that banks do not pay out in aggregate more than they should do and do not put the banks themselves at risk.

Mr Sants also stated that the FSA would be publishing its remuneration code this week (a draft was published earlier this year). The interview is reported in today's Financial Times newspaper (see here) and Guardian (see here). A transcript of the interview is available here. A short extract of the interview can be viewed here.