FSA to extend tough bonus rules

Around 2,500 firms across the country could be forced to adopt the City watchdog’s tough new rules on bonuses and remuneration.

The current Financial Services Authority (FSA) code applies to the largest banks, building societies and broker dealers in the UK but this will be extended to cover hedge funds and some financial advisers.

The watchdog’s proposals are in line with current European requirements.

The rules would extend to all investment firms, asset managers, hedge fund managers and banks and building societies.

Alongside certain companies that deal with venture capital, the provision of financial advice and stockbroking and corporate finance.

The rules would force staff at thousands of UK finance firms to defer at least 40% of their bonuses for at least three years – or as much as 60% or more if the windfall is more than £500,000.

At least half of bonus payments would also need to be made in shares, while other stringent new regulations would see handouts subject to clawback clauses.

The proposals come as part of a crackdown on pay policies launched worldwide in the wake of the financial crisis, when hefty bonuses were widely blamed for creating an excessive risk-taking culture that led to the credit crunch.