Summary
The financial services industry in the UK does not care one jot what the Financial Services Authority (FSA) does, or says.
The FSA truly is a creation of the politicians!
The FSA truly is a creation of the politicians!
Analysis
President Obama's hands off approach wrt pay of bailed out enterprises is not unique, a similar approach is being taken by the British government and one of its regulatory arms in the UK.
Despite politicians "huffing and puffing" over the levels of executive pay within the banking and financial services industry, precious little is being done by the British government to curtail it; even within the bailed out banks that they run on behalf of the taxpayer eg Royal Bank of Scotland (RBS), Northern Rock and Lloyds Banking Group.
The responsibility (or rather "buck") for monitoring banking pay has been passed to the hapless Financial Services Authority (FSA).
However, the FSA has tried to pass the buck back to the government. The embattled CEO of the FSA, Hector Sants, fought his corner on BBC radio on 13 August 2009.
In response to criticisms that the FSA's new remuneration code is too soft on bankers, he stated that politicians have "ducked" the issue and have passed "the buck to the FSA".
He quite correctly noted that the FSA was not set up to take a "moral view" on the scale of payouts. However, its role is to ensure that pay packages did not encourage inappropriate risk-taking.
He also, rather wisely, noted that it was "reasonable" for the government, as a shareholder in some institutions (eg Royal Bank of Scotland and Lloyds Banking Group) to set parameters on how the companies were run.
In response to criticisms that the FSA's new remuneration code is too soft on bankers, he stated that politicians have "ducked" the issue and have passed "the buck to the FSA".
He quite correctly noted that the FSA was not set up to take a "moral view" on the scale of payouts. However, its role is to ensure that pay packages did not encourage inappropriate risk-taking.
He also, rather wisely, noted that it was "reasonable" for the government, as a shareholder in some institutions (eg Royal Bank of Scotland and Lloyds Banking Group) to set parameters on how the companies were run.
Thereby neatly reminding the government that, at least in those two cases, they really are in charge and do have a say.
Doubtless that suggestion will fall on deaf ears, as the government would very much like to pretend that it has no control over these two institutions; to admit that it does would mean that it would be blamed for the poor results.
Doubtless that suggestion will fall on deaf ears, as the government would very much like to pretend that it has no control over these two institutions; to admit that it does would mean that it would be blamed for the poor results.
Meanwhile as the tide of public opinion turns against mega bonuses, the City of London has come up with a "novel" wheeze for ensuring that their "star" players are not inconvenienced by having to cut back on their lifestyles.
Salaries are being increased to sop up the shortfall on bonuses.
Squeeze a balloon at one end, and it will expand at another.
The FSA, as is their wont, have not intervened and instead have tried to direct people's attention to their "pro active" (albeit many years a coming) actions wrt bonuses.
Salaries are being increased to sop up the shortfall on bonuses.
Squeeze a balloon at one end, and it will expand at another.
The FSA, as is their wont, have not intervened and instead have tried to direct people's attention to their "pro active" (albeit many years a coming) actions wrt bonuses.
Hector Sants claims that the FSA would not allow any "new" multi-year guaranteed bonus payments to be made.
However, as an article in Citywire points out:
"The FSA fears that if base salaries were low, it would make it difficult for a bank to eliminate or cut bonuses in a poor financial year."
In other words, in order for the FSA to show that it has actually done something (ie forced a cut in bonuses) it has to allow (nay force) companies to increase base salaries.
However, as an article in Citywire points out:
"The FSA fears that if base salaries were low, it would make it difficult for a bank to eliminate or cut bonuses in a poor financial year."
In other words, in order for the FSA to show that it has actually done something (ie forced a cut in bonuses) it has to allow (nay force) companies to increase base salaries.
In order to hide this perverse policy from the prying eyes of the public, the FSA is conducting diversionary "spot checks" on bankers' pay. However, as I have noted in my article Royal Bank of Scotland To be Spot Checked - Who Cares? :
"Whether the FSA spot checks RBS, or indeed any other bank, the question is do the banks and other financial services organisations in the UK actually care what the FSA says or does?
The financial services industry in the UK does not care one jot what the FSA does, or says.
As can be seen from the above, the FSA truly is a creation of the politicians!
The FSA, having been set up as part of Gordon Brown's failed Tripartite Regulatory System (who is actually in charge of that; the Treasury, Bank of England or FSA?), has not covered itself in glory."
The financial services industry in the UK does not care one jot what the FSA does, or says.
As can be seen from the above, the FSA truly is a creation of the politicians!
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
