The chief City watchdog has nearly halved the number of firms that will be affected by its clampdown on what has been criticised as the out-of-control bonus culture.
It emerged yesterday that the Financial Services Authority's much-vaunted new code of practice on pay will apply to only 26 banks operating in the City of London, down from the original 45. Buried in the small print of a lengthy report, the move could heap more criticism on the watchdog for being "soft on the City".
An FSA spokesman said the decision to cut 19 banks out of the code had been taken because they were "smaller" and typically did not offer the sort of seven-figure bonus payments that have proved so controversial in the wake of the near collapse of Britain's banking system.
However, recruitment consultants said the move could offer those banks a hiring advantage if they chose to make use of the fact that they are not under the same pay constraints as their larger rivals.
The FSA has also accepted that it could damage Britain's competitive position if it were to go too far with restrictions that are not replicated by regulators in other territories. Watchdogs around the world are currently discussing possible reforms to bankers' pay in the wake of the financial crisis that has rocked global economies. But they have taken little action.
Banks in the UK will be required to "defer" as much as two-thirds of bonuses offered to management and "other important people", including proprietary traders who use banks' own money to place substantial bets on financial markets. Guaranteed bonuses have also been banned as part of eight new principles which have been added to the FSA's rule book.
The watchdog has told banks to come back to it by October with proposals on how they plan to implement the principles, which must come into effect by January. Companies that it believes have failed to comply could face substantial fines or the prospect of being forced to hold extra capital.
Reactions to the FSA's plans in the City were mixed. Peter Montagnon, the director of investment affairs at the Association of British Insurers, said: "The FSA has stuck to its principle of linking remuneration to risk, while making the Code less prescriptive and narrowing the scope of the organisations covered."
But Angela Knight, chief executive of the Association of British Bankers, said the UK could still lose business if foreign jurisdictions fail to follow its lead. "Our concerns are that other countries have talked about similar changes but have not made them. For this Code to succeed, our European partners and the G20 countries must also step up to the plate and do what the UK has done."Reuse content