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Failure won’t stop regulators paying themselves bonuses

The Financial Services Authority’s budget for 2009/10 has leapt to an eye-watering £415m, leaving shell-shocked firms to find an additional £117m for the privilege of having someone to watch over them.

However, that £415m figure pales into insignificance when you add up what regulation – and pretty shoddy regulation at that – has cost the industry and taxpayers in the past 18 months. The bill runs into billions.

Equally amazing is the fact that this discredited institution will be paying its staff bonuses equivalent to about 15% of their salaries, a move that will cost around £33m.

Of course, that’s modest by City standards but it’s still a tad hypocritical in the present climate, especially as the FSA has written around 25 ‘Dear chief executive’ letters to UK and foreign-owned banks asking them to review their remuneration policies and if necessary change them.

It’s also ironic that while politicians and the media are busy condemning bailed-out banks for paying bonuses they are turning a blind eye to civil servants getting fat handouts for also getting it wrong.

FSA chairman Lord Turner of Ecchinswell justifies the regulator’s bonus system as being part of its variable pay package, whatever that means.

His Lordship adds: “If you are saying that we should now cut these bonuses you are saying that we should cut [employees’] pay by 15% against a background where we are being told we need better people.”

Somewhere along the line there’s a confusion in terminology there that I can’t quite get my head around.

Setting aside the sophistry of Lord Turner’s argument, surely having to take a 15% pay cut is better than having no job at all.

Besides, thanks to the regulator’s strategy to date – its own figures show that 769 mortgage companies threw in the towel last year – there’s no shortage of well-qualified executives looking for jobs, so why not let those wanting bonuses try to find them somewhere else?

To be fair the FSA has got its work cut out. It will have to find more money from fewer firms (as having fewer firms apparently has not reduced the regulatory workload) and it will have to find a replacement for Sir James Crosby, one of the “brilliant bankers” that Lord Tur-ner admits “dazzled” the government and its regulatory agencies.

It will also be helping to rewrite the Basle II accord which allowed Northern Rock to reduce its capital requirements in inverse proportion to its growing exposure in the market.

The FSA calls this “playing a full role in modernising the global regulatory framework” – activity that it will be describing in a discussion paper that is allegedly due this month in which it will also consider “the institutional coverage of prudential regulation”.

On that score you’ll be glad to learn that “significant steps have already begun to extend accounting and regulatory coverage to the so-called shadow banking institutions such as investment banks, off-balance sheet vehicles and hedge funds”.

How this will help the foot soldiers of the mortgage industry is unclear. The FSA says that its financial appetite will not affect smaller firms but that only serves to show how poorly it understands its patch.

As the Association of Mortgage Intermediaries has pointed out, some mortgage networks will see a tripling of their contributions to Canary Wharf, and as for small firms – those with an income of less than £70,000 a year – they’ll see their annual contribution fall from £745 a year to £701.

I suppose that’s better than a 2.5% cut in VAT.


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