UK financial watchdog to investigate bankers' bonuses

The bonus plans of Britain's biggest banks were under the spotlight again today as the City watchdog revealed it was stepping up pressure to curb excessive payouts.

The bonus plans of Britain's biggest banks were under the spotlight again today as the City watchdog revealed it was stepping up pressure to curb excessive payouts.

Hector Sants, chief executive of the Financial Services Authority (FSA), is warning banks that a dim view will be taken if they fail to store up decent levels of cash while paying out hefty bonuses.

The message echoes the recommendations made by Mervyn King in his role as chair of the Financial Policy Committee (FPC) that bonuses and dividends should be curtailed if capital levels are not sufficient to withstand future financial shocks.

A spokesman for the FSA said: "We are vigorously engaging with the major UK banks to ensure they comply with the FPC's recommendation to retain capital by reducing distributions such as bonuses."

Details on bank bonuses, which could emerge in annual results in February and March, are likely to provoke outrage from groups who have campaigned for a crackdown on City pay since the 2008 credit crunch forced taxpayers to bail out Royal Bank of Scotland, Lloyds Banking Group and Northern Rock.

The meetings between Mr Sants and the banks are routine but it is understood that he is pushing the issue of cutting back bonuses particularly hard ahead of the reporting season in the spring.

King, who is also Governor of the Bank of England, said storing up capital was crucial "to bolster the resilience of our financial system to better withstand the storms that may come in our direction".

However, King said UK banks were in a better position than their continental peers to withstand future financial shocks.

Last year, RBS, HSBC, Barclays and Lloyds Banking Group all passed stress tests conducted by the European Banking Authority (EBA) to ensure they can withstand another financial crisis.

A key benchmark for passing the test was whether the banks have at least 5% core tier 1 capital, which describes the best form of capital a bank can hold to make up any losses.

The meetings between Mr Sants and the banks follow reports which suggest Barclays plans to pay £5bn (€6.06bn) in pay and bonuses to its investment bankers while RBS intends to pay around £500m (€605.8m).

The UK government and investors are also turning up the heat on bank boards over the issues of bonuses.

The eight highest-paid executives outside boardroom level of Britain's biggest banks will have to reveal their pay packets under new proposals revealed by the british Treasury.

The british government launched a consultation on the proposal as it looks to tackle "unacceptable" bank bonuses by improving pay transparency at the country's largest banks.

Elsewhere, influential shareholder group the Association of British Insurers (ABI) earlier this year warned it can no longer be "business as usual" for the banking sector when they decide how much to pay their staff.

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