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FSA's new powers: illegal, dangerous and avoidable?

By Michelle McGagh | 08:29:16 | 17 November 2009

The news about the Financial Services Authority (FSA) being given new powers to ‘tear up’ bank bonus contracts has already caused a stir with newspapers reporting the plan is either illegal, dangerous or avoidable.

First off the block was Janet Daley for the Telegraph, she was responding to Treasury Select Committee chairman John McFall’s comments on the Today programme. McFall said ruling out bonuses retrospectively would not provide ‘a field day for lawyers.’

But Daley doesn’t agree: ‘For the government to instruct the FSA to intervene in such a way on existing contracts would be so legally contentious as to embroil it in years of court action.’

The BBC was equally ominous in its predictions. Former chairman of RBS Sir George Mathewson said giving the FSA such power is a ‘dangerous route to go down’. He added that the FSA had enough tools already to ensure bonus systems do not threaten financial stability.

Sky News city editor Mark Kleinman said the new rules could be avoided if the banks are not regulated by the FSA. Huh?

‘It doesn’t include all banks which have large operations in the City of London such as BNP Paribas of France and Deutsche Bank, which is one of the biggest employers in the City,’ said Kleinman.

‘They will not be subject to this new crackdown because they are not regulated by the FSA in the same way that Barclays, HSBC and some of the other international banks such as Goldman Sachs are regulated.’

The changes to the FSA’s power are due to be given in the Queen’s Speech on Wednesday but Commons leader Harriet Harman shrugged off claims that it was just ‘window dressing’.

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Comments (7)

Phil Castle - This will be law/rules using hindsight

10:11 | 17 Nov 2009

Anyone signing an employment contract in future for a firm regulated by the FSA will as a matter of course send it to the FSA offerring them the opportunity to object BEFORE the contract is signed (which they will ignore or even worse as they have done with our own firms Client Agreements and terms of Business repeat back the rules in such a way that we cannot then use the contracts or make ANY changes which our contacts at Trading Standards can then accept us to use as members of their "Buy with confidence scheme).

If they want to be able to set aside contract law, they need to be willing to read and comment on the acceptability of contracts BEFORE they are signed, not afterwards.

This is getting more and more like a Communits state by the day!

Evan Owen - Henry VIII clause

12:43 | 17 Nov 2009

The FSMA 2000 contains such a clause.

Please use it.

Michael Fallas - Law unto themsleves

16:57 | 17 Nov 2009

The FSA in effect circumvents generations of laws and freedoms this country has had and they are now a law unto themselves.

What other authority can make the rules, be judge and jury and also sentencing authority, where there seems to be little independent way to defend oneself and even better it is funded by those it convicts and sentences yet it also is able to borrow from those it regulates.

You really can't get much better than that now can you?

idris nagaty - Not only unlikely to be legal-but unnescesary

17:26 | 17 Nov 2009

This has got to be politically driven posturing. Not only is tearing - up a contract of employment likely to involve substantial legal costs defending, and probably losing, the consequent legal claims, it is also unnecessary. The FSA has the power to force businesses taking a higher level of risk to hold higher reserves.

See "Thomas Huertas, Director, Banking Sector, FSA, London Financial Regulation Seminar, 19 January 2009"

"As the risk of Bradford & Bingley increased during 2008, the FSA intensified its monitoring of the bank, required the bank to undertake actions to mitigate that risk, including raising new capital. "

and

"Banks cannot employ a business model that .....mismanages conflicts of interest, .... Banks have to operate with due care, skill and diligence, and they have to have appropriate systems and controls".

So, if the FSA perceives a bank's remuneration policy as likely to encourage excessive risk taking, it can force the bank to take action such as enhanced monitoring of the employees activity, ceasing to undertake certain activity, or increasing capital reserves-all sufficient to control the problem, and likely to encourage less risky contracts for future employees!

Dermot Brannigan

08:45 | 18 Nov 2009

This'll work!

I'm just looking forward to the day when we hear about the FSA knocking on the door of a coloured lady at home on maternity leave, and they're threatening to rip up her employment contract!!!

Hang on, if the FSA get embroiled in expensive legal suits, who's going to have to foot the bill? Oh yes, the banks and the financial services industry! Brilliant!

Andrew Baker - Twaddle and obfuscation

10:56 | 18 Nov 2009

The plutocrats are laughing at us: this is rubbish designed to take our attention away from the fact these jokers at the top are taking whatever they want whenever they want and this won't change. The tax-paying public pay the bill for the political process and the costs to the banks and other companies involved in responding (Government and banks have no money that we don't give them.) The people doing the politics and the banks' bosses still rip off their chunks to feather their own nests. It's this that must be attacked and stopped, and time and money not wasted on these distractions.

Julian Stevens - The monster gets worse

12:12 | 18 Nov 2009

The FSA itself is illegal, dangerous and avoidable. All the evidence of its incompetence, bias and profligacy tells us so in letters writ large.

The sooner the next government tears the FSA to pieces and rebuilds it under a new FSMA the better.

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