Business

A pay policy for the whole City

BBC business editor Robert Peston on new EU rules on bonuses

When I reported back in June that a revised European Union directive would have the effect of applying new rules on how bonuses are paid to more than 2,500 City firms - up from just 26 large banks right now - there was widespread scepticism (see my post, Crackdown on hedge fund pay).

However the FSA has today confirmed that is what will happen.

And the City watchdog points out that equivalent restrictions are also to be applied to insurers and most fund managers, including all hedge funds, when two other EU directives come into effect in 2012 and 2013.

However the FSA's consultation document on the implementation of the rules implies that it may in practice allow some firms to breach the pay restrictions, if those firms are not regarded as big enough or important enough to pose dangers to the stability of the financial system.

That said, many firms will henceforth be obliged to defer between 40% and 60% of any bonus over three years and to pay no more than half of any bonus in cash, as opposed to shares or other securities.

Many City firms won't like this infringement of what they see as their fundamental right to pay as much as they like to whom they like in whatever way they like.

But there's no escape from the rules within the Europe Union. And for big banks, there's very little hiding place anywhere in the world.

But for other financial firms, shelter from the official scrutiny may be obtained by fleeing to Asia or Wall Street or Switzerland.

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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