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FSA's bonus rules face legal battle
02 August 2010
The FSA's new bonus rules are "fraught" with legal problems which could lead to endless challenges through the courts, PricewaterhouseCoopers (PwC) warns. A provision set to be brought in next January will allow the FSA to void contract if it discovers an employer has breached its remuneration code. Currently, the code applies to the largest banks, building societies and broker dealers. However, the regulator plans to extend this to asset managers, hedge fund managers, UCITS investment firms as well as some firms engaging in corporate finance, venture capital, the provision of financial advice and stockbrokers. These are firms which are now caught by the Capital Requirements Directive (CRD 3). Employees could be forced to give back pay if institutions do not follow rules on bonus deferral and guarantees, under the changes. However, a PwC report on the implications of the new rules warns employers to expect "significant practical and legal issues", the Telegraph reports. The new voiding principle was proposed by the financial regulator last Thursday, as part of wider changes to strengthen the FSA remuneration code to bring it into line with EU requirements. The number of firms covered by the code will jump from 27 to 2,500 next year, under the proposals. Tens of thousands more staff could be forced to defer at least 40% of their bonuses for at least three years under the proposals, or 60% or more if the windfall is more than £500,000. However, Tom Gosling, partner at PwC, says: "The most obvious difficulty with the voiding provision is when companies employ someone in an overseas territory. "If the [UK-regulated] bank pays them a guaranteed bonus of more than one year's salary contrary to the code, and the FSA says it will void the contract, it will have limited enforceability." Published by IFAonline
