Finance watchdog's outgoing chief tells banks they need reform on excessive pay

In a parting shot, the head City regulator yesterday warned banks that they must further reform their bonus culture because they are still encouraging short-termism and risk-taking.

"Should there not be some expectation that people entrusted with the leadership of financial services organisations ultimately are driven by the desire to 'do the right thing'?" asked Hector Sants in one of his final speeches as chief executive of the Financial Services Authority (FSA).

"It is called integrity and it is what we all... expect of the sector's leaders. It should not solely be about how much we earn but also about how much we care for the market's users and their well-being."

His remarks came three days before investors confront Barclays' chief executive, Bob Diamond, over his £17.7m pay package at the bank's annual meeting.

Mr Sants also warned banks that although their balance sheets had improved since the financial crisis they had not yet done enough to strengthen senior management. He said: "The crisis exposed significant shortcomings in firms' governance and risk management and the culture and ethics which underpin them."

Mr Sants said the FSA had taken a greater role in interviewing central management appointments at banks and financial services firms since the crisis. In particular, it had tried to ensure senior bankers appointed to new roles had the technical skills to manage the risks in their banks.

"Ultimately, the purpose of financial markets is to serve everyone, not the personal interests of individuals," he said. "We will only really have learnt the lessons of the crisis when this is recognised by all."