FSA head favours transaction tax to curb bonuses

by Gill Montia

Story link: FSA head favours transaction tax to curb bonuses

The chairman of the Financial Services Authority (FSA) has thrown his weight behind the concept of a new tax on banks, aimed at curbing the bonus culture.

Speaking to Prospect magazine, Lord Turner said he supported the idea of a levy on financial transactions that would shrink bonus pots by reducing banks’ profits.

In addition, such a levy could provide funds for the public good.

The debate over City bonuses has been raging since the onset of the credit crisis, with accusations that the bonus culture favoured short-term gain and threatened effective risk management.

New FSA regulations on financial firms’ remuneration policies are due to come into force in January and last month the regulator sent out a warning shot in the form of a letter to chief executives making it clear that no allowances will be made for any remuneration packages agreed after the FSA’s consultation process began in March.

The Authority is now in the process of checking remuneration policies for compliance with the new regulations.

Lord Turner’s opinions carry considerable weight both nationally and internationally; in addition to his appointment to the FSA, he has held senior positions in the banking sector.

Responding to the idea of a transaction tax, the British Bankers’ Association has voiced fears that the wrong type of regulation could drive financial businesses abroad.