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    http://www.bbc.co.uk/news/business-11967012

    Although they are not obligatory, a spokesman for the Financial Services Authority confirmed that the UK bank regulator and its counterparts in other European countries intend to implement the guidelines in detail.

    They recommend requiring that banks:

    appoint an independent remuneration committee
    defer 40-60% of bonuses for three to five years, and pay 50% of bonuses in shares (rather than cash)
    set a maximum bonus level as a percentage of an individual's basic pay
    exclude any "award for failure" from severance pay packages
    publish pay details for "senior management and risk takers".
    So FSA will implement them into UK making them obligatory?
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    "recommend" being the key word there. And it's aimed at senior bankers, anyhow.
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    What I've never understood is why getting your bonus in terms of shares as opposed to cash makes any difference. Can you not just cash out your shares as soon as you get them?
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    (Original post by Inflation)
    http://www.bbc.co.uk/news/business-11967012



    So FSA will implement them into UK making them obligatory?
    I'm sorry, but your sig is the best thing I have ever seen
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    (Original post by uthinkilltellu)
    "recommend" being the key word there. And it's aimed at senior bankers, anyhow.
    It will almost certainly be adopted, with specifics, by both national regulators and the European Commission. And it will be legally binding.

    Also, the scope is wider than just senior bankers. Covers executive management, senior managers, anyone with a material impact on risk (including many traders), and anyone overseeing the internal risk controls.

    It will probably be in line with the AIFM Directive which was passed into European law last month (which applies similar rules on hedge funds and private equity): at least 40% of variable pay to be deferred for 3-5 years, and introduction of claw-backs for under performance.
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    (Original post by Swayum)
    What I've never understood is why getting your bonus in terms of shares as opposed to cash makes any difference. Can you not just cash out your shares as soon as you get them?
    There's a time limit, I think 3-4 years or something similar is the earliest you can cash in those shares.

    It's supposed to stop bankers going in for the quick profit long term damage deals as if the bank's shares drop in a few years then they'll personally be losing out too. So it's aimed to encourage more 'responsible' banking.

    Also they want to stop bankers threatening to move to rival banks instantly if their salary is not increased because if they do leave then they'll forfeit those shares entitled to them.

    EDIT: I'm sure the bankers will somehow find loopholes around it, they always do. The government thinks it can just increase taxes and banking restrictions but I doubt it will work. If it gets really bad then a lot of the banks could find themselves moving to the Asia region. Also these new limits and restrictions on european banks will apply to their staff all over the world, america, asia..everywhere! This risks the asian employees moving to asian or american banks in their country to escape the restrictions.
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      Forgive me if you think I'm being dense, but I suppose there is a risk of creating a loophole here... is there anything stopping banks from dropping bonuses and simply giving their senior staff big pay rises?

      The inverse of this is how the MPs expenses system came about. It was considered more palatable for a per-needs based expenses system than a pay rise for the entire HoC.

      I don't suppose it matters anyway - the bankers will just move to the US, the land where you can get a $300m payoff for bringing down the whole US economy through what pretty much amounts to fraud.
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      (Original post by Swayum)
      What I've never understood is why getting your bonus in terms of shares as opposed to cash makes any difference. Can you not just cash out your shares as soon as you get them?
      There are minimum holding periods, e.g. 5 years, so no. The idea is to align interests on a longer time horizon, which I agree needs to be done, but not in this draconian manner (% limits on absolute size, composition, etc is just wrong). I'm all for clawback provisions - these should be sufficient in my view to achieve longer-run alignment of incentives. Clearly, the motivations for the extreme measures are overwhelmingly political (to appease the masses by punishing the industry Average Joe blames for everything over the last few years), rather than deciding what's best for the economy in the long run.

      Fortunately, I can guarantee the law of unintended consequences will triumph in the long run.

      A few thoughts on corollaries to this legislation:

      Big picture: obviously, if European banks cannot pay as much as non-EU rivals, there will be a gradual movement of financial labour out of Europe and then, by both the virtuous cycle of strengthening non-EU industry and vicious cycle of weakening EU counterparts, capital will follow the labour out the door. Other financial centres of the world will grow at the expense of Europe (Hi Zurich, Dubai, HK, Singapore, Shanghai, etc.).

      Pay will see a dramatic shift in composition from performanced-based bonuses to [guaranteed] salaries - clearly not desirable. I agree completely that guaranteed bonuses are just plain wrong from an incentives standpoint, and this will just make matters worse.

      Labour mobility within the financial sector within Europe will become highly illiquid and very expensive. Everyone will be chained by deferred bonuses to their current employers because jumping ship would mean losing them, so... the price for poaching talent is going to go up multiple-fold. This legislation will clearly promote huge gt'd packages offered for lateral hires and exacerbate the aforementioned incentives problem.

      Industry composition will see a massive shift from the regulated investment banking industry to unregulated hedge funds, so expect a bigger shadow banking system.
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      (Original post by SevenDeuceOff)
      Fortunately, I can guarantee the law of unintended consequences will triumph in the long run.

      A few thoughts on corollaries to this legislation:

      Big picture: obviously, if European banks cannot pay as much as non-EU rivals, there will be a gradual movement of financial labour out of Europe and then, by both the virtuous cycle of strengthening non-EU industry and vicious cycle of weakening EU counterparts, capital will follow the labour out the door. Other financial centres of the world will grow at the expense of Europe (Hi Zurich, Dubai, HK, Singapore, Shanghai, etc.).

      Pay will see a dramatic shift in composition from performanced-based bonuses to [guaranteed] salaries - clearly not desirable. I agree completely that guaranteed bonuses are just plain wrong from an incentives standpoint, and this will just make matters worse.

      Labour mobility within the financial sector within Europe will become highly illiquid and very expensive. Everyone will be chained by deferred bonuses to their current employers because jumping ship would mean losing them, so... the price for poaching talent is going to go up multiple-fold. This legislation will clearly promote huge gt'd packages offered for lateral hires and exacerbate the aforementioned incentives problem.

      Industry composition will see a massive shift from the regulated investment banking industry to unregulated hedge funds, so expect a bigger shadow banking system.
      I entirely agree about the unintended consequences. I don't agree with some of your suggestions of what they may be.

      Mobility will be hard to achieve. Other European legislation introduces limitations on access to EU markets - companies have to be based in a country with an 'equivalent' regulatory regime. The US currently doesn't qualify. The EU market is too large to ignore, so firms will have to swallow most of it.

      I think the real regulatory arbitrage will come through legal entity structures. It won't be in the form of the current shadow banking system however, as the regulation employs a broad definition of fund managers, so hedge funds for example are covered. What those entities will be isn't clear yet, but is likely to involve greater division of business units, similar to how derivatives trading is getting shifted out in the US because of the push-out of swaps rules.

      Either way, the costs will be significant. Salaries will fall. The securities industry will move to a flow model based around clearing with much lower margins.

      Now you guys just need to spot the next wave of financial innovation.
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      So will these affect graduates who just started trading roles? I'm guessing no as they won't have a trading book.
     
     
     
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