UPDATE 2-UK banks told must restrain bonus payments

* New UK code aligned with tough EU curbs

* Small banks and building societies get lighter treatment

* Banks warn on need to maintain global level playing field

(Recasts, adds lawyer, bankers’ comments)

By Huw Jones and Steve Slater

LONDON, Dec 17 (BestGrowthStock) – Britain fell in line with the
rest of the European Union in introducing the world’s toughest
bank bonus curbs on Friday as politicians and the Bank of
England stepped up pressure on lenders to rein in payouts.

The Financial Services Authority published an updated
remuneration code that will affect 2,700 financial firms it
regulates from January just as the 2010 bonus round is underway.

The British Bankers’ Association responded by saying the
sector contributes chunky tax revenues to the UK treasury and
the country’s banks should not be put at a competitive
disadvantage to rivals outside Europe.

“The financial services industry contributes more than one
pounds in every 10 pounds raised for the exchequer,” the BBA
said. “Until there is a genuinely global consensus on pay in
financial services, the challenge for policymakers will be to
ensure the UK continues to attract this valuable business.”

The revised code folds in all the rules approved last week
by the Committee of European Banking Supervisors (CEBS), such as
on mandatory deferral of parts of a bonus, retention of portions
paid in shares and strict conditions on guaranteed bonuses.

The aim is to curb excessive risk taking by bankers on the
hunt for short-term profits.

There were no major surprises in the revised code, but it
cements a shifting mood.

“They will fundamentally change bank bonus culture,” said
Gillian Chapman, partner in Linklaters’ employment and
incentives practice. “Up-front cash bonuses will be dramatically
reduced and guaranteed bonuses will be the exception rather than
the norm.”

Lawyers saw some wriggle room, however.

“The FSA has given some hints that it could mitigate the
impact on non-EU businesses by treating individuals working in
those business as outside the scope of the code, and has broadly
carved out asset managers and others,” said Simon Gleeson, a
partner at Clifford Chance.

As with the CEBS rules, staff at low-risk firms like small
banks and building societies could escape the more draconian
rules.

“The most significant of these are: the requirement to have
a UK-based remuneration committee, deferral, and the proportion
of variable remuneration paid in shares,” the FSA said.

“For other rules, the FSA will apply a discretionary
approach that is likely to result in less-onerous requirements,”
the watchdog added.

CHANGE UNDERWAY

There remains deep political and public anger at the scale
of pay for bankers after taxpayers had to rescue some lenders
from the brink of collapse two years ago.

Many banks have bumped up base salaries in the face of
tougher bonus rules.

“The major institutions have known broadly the thrust of
what was going to be required of them for quite some time and
have been adjusting to an extent,” said Ben Kingsley, partner at
law firm Slaughter & May in London.

“The more interesting aspect than the letter of what’s in
the rules is the political angle to all of this.”

Britain’s ruling coalition sent out mixed signals on Friday.

The deputy prime minister warned banks the government will
not remain neutral if banks fail to cut this year’s bonus
payments or increase lending to small companies.

“The banks should not be under any illusion, this government
cannot stand idly by,” Nick Clegg said in an interview in
Friday’s Financial Times. [ID:nLDE6BF2A4]

But a spokesman for Prime Minister David Cameron said he
clearly wanted to see pay restraint, but did not outline any
further measures to rein in remuneration beyond measures that
have already been announced.

The Bank of England urged banks to retain earnings to build
up capital and not pay it out in bonuses or dividends, given the
fragility of financial markets. [ID:nSLAGNE6KP]

Lenders including HSBC (HSBA.L: ) and Barclays (BARC.L: ) have
said they need to keep pay competitive to hold on to staff. The
FSA said in terms of the global scope of the revised code, fewer
and more senior employees would be included compared with now.

Reuters is due to release a poll on bank bonuses later on
Friday.

(Additional reporting by Mo Abbas; Editing by David Holmes
and David Cowell)

UPDATE 2-UK banks told must restrain bonus payments