A month ago the FSA issued watered down rules on remuneration, but Lord Turner’s focus was on increasing capital requirements for banks in order to ensure they are better able to weather financial storms.

I agree with Lord Turner on that issue, and many G20 members do also, however, bonuses have and will remain a serious bone of contention and in a final communique issued on 25th September, a new raft of rules for implementation by members and overseen by the Financial Stability Board must now be implemented.

The G20 Final Communique proposals include:

  • bonus deferrals;
  • clawback of bonus payments in the event of subsequent losses;
  • avoidance of multi-year guaranteed bonuses;
  • increased disclosure requirements; and
  • a limit imposed the size of the bonus pool by reference to the total income of the employing institution.

The FSA did not recommend clawbacks and had much lower-impact proposals for bonus deferrals and the revised code will be effective for bonus pools with effect from January 2010.


While many in the press are viewing this as “an embarrassment” for the FSA, my position is this is still something of a storm in a teacup (perhaps a “mug”). The French made a lot of noise on bonuses, including threats to walk-out of the Summit if the issue was not dealt with by the G20, and in this at least, they have gotten their way.

French Finance Minister, Christine Lagarde stated, “I hope we will save [President Sarkozy] the trouble of having to walk out.”

Bonuses are an easy give-away in terms of enhancing regulation from a political standpoint¬†but¬†as we covered a week ago, Societe Generale has already lost a high-performing team over bonus limitations due to “voluntary cooperation” with the French government. Other high-fliers are going to be looking at their options too, and it is to be anticipated that bonus restrictions are going to create a spate of new companies established by disenchanted bankers seeking to break through artificially imposed, glass ceilings on their earnings capacity.

What has this cost the French?

Arguably it has cost them German support on AIFM but then again, the Germans are tied up with establishing a new coalition government after Chancellor Merkels election win over the weekend. pittsburgh seo company

Berlin announced it is concerned over the AIFM Draft Directive proposals and the pan-EU regulatory framework – while Frankfurt cannot yet match London, the Germans have seen the French writing on the wall and cracks have appeared in the front presented by the main proponents of AIFM. President Sarkozy may now be able to go home to Paris with a Gallic grin on his face with a clear political success on the global stage to feed to French voters. If the price is failing to get the extreme regulatory AIFM framework which French voters probably will not understand nor care about, President Sarkozy has scored a big win by his goals.

Plus ca change, plus ca la meme change Monsieur President!

The price for hedge funds and alternative investment players for less draconian regulatory reform may be greater bonus regulation. If bonuses are not so important in the global financial scheme, who is really going to care except those who receive them and rely on bonuses to attract talent? If bonuses do make a difference, did the FSA and other regulators who absolved the hedge fund industry of blame for the crisis get that judgement call right?