Hector Sants was appointed as the Chief Executive Officer of the UK Financial Services Authority in July 2007.
From the Daily Telegraph… we get news of a regulator that knows how to rein in behavior it deems risky…
~~~ “Banks told to comply on bonuses or lose UK banking licences in shock FSA ultimatum
Investment banks have been told that every bonus issued must comply with the regulatory guidelines – or they face having their licences to operate in Britain revoked.
In an extraordinary ultimatum that has shocked some of the City’s biggest companies, the Financial Services Authority (FSA) told bank bosses that 60pc of all pay must be deferred, with no exceptions, even for those whose contracts conflicting with the edict.
Many of the global players have in recent weeks made representations to the City watchdog, in particular about pre-existing employment contracts that guarantee bonuses over a year or more. But their appeals have been met with the FSA’s toughest yet response.
One pay executive in a major bank told The Daily Telegraph: “The message came back that while the FSA agreed that it does not have jurisdiction over contractual law, it does have jurisdiction over issuing bank licences in London, and that we should go away and unwind the contracts.
Bankers at Merrill Lynch are among the first affected. Those with pre-existing contracts were told about the FSA’s tough stance on Friday when their bonuses were agreed.
One Merrill Lynch employee said: “We thought that contracts would be immune from changes but were told by bosses that their hands were tied and there was nothing they could do, the regulator had put its foot down.”
Banks that have not yet told staff about the bonus payouts are now scrambling to ensure that they are comply with the FSA rules.
Senior directors are concerned that the stance could result in the banks facing a series of legal challenges from individuals with pre-existing contracts. Headhunters say that banks including Barclays Capital and Nomura have lured star performers by offering them large guaranteed bonuses.
One headhunter said: “Many of these contracts have guarantees that 50pc of the bonus will be paid in cash. These are tricky things to unpick. But cleverly, the FSA has put the onus on the banks to unwind the contracts, rather than itself getting embroiled in a complex legal row.”
Banks’ senior directors have complained that the FSA’s position on bonuses has shifted radically throughout the year, particularly in recent months since the Government announced its tax on bonuses and President Barack Obama unveiled his radical proposals to restrict Wall Street.
One said: “They have clearly gained confidence and they’ve thrown down the gauntlet. It’s been very confusing and disruptive.”
The FSA’s position is the culmination of nearly a year of debate over how to curb huge sums paid out in remuneration by banks. In March, the regulator wrote to the bosses of the major investment institutions explaining that it was preparing a code designed to limit excessive pay in the aftermath of the financial crisis.
The consultation was followed in August by the publication of guidelines that demanded pay had to be calculated in relation to overall over risks.
The FSA issued guidelines on best practice for remuneration committees as well as recommendations for deferrals, claw-backs and a lower proportion of cash payouts.
When it found that some companies still planned to award multi-year guarantees and cash bonuses in the face of mounting political and public controversy, the regulator began to take a harder line.
In October, Lord Turner, chairman of the FSA, said he had “a range of levers” at his disposal to block “excessive bonus payments”. “We will be talking to banks about whether their bonus pools are appropriate and if they aren’t we will have a full and frank discussion with them,” he said. At the time Lord Turner declined to detail the measures available to him.
The FSA said it would conduct spot checks to examine contracts and also threatened to force those breaching the rules to hold higher amounts of capital to compensate for the perceived extra risk. But privately bankers argued that the FSA would never be able to sweep away the rule of law.
One executive faced with dealing with the new ultimatum said: “It was pretty amazing but we actually chuckled because it’s the sort of hard ball we would have played if we’d been in the FSA’s shoes.” ~~~
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Feb. 9 (Bloomberg) — Hector Sants, the chief executive officer of Britain’s financial regulator, will leave the agency following a national election that will determine the future of the Financial Services Authority.
Sants will step down by the end of the summer, the FSA said in a statement. He began his role in July 2007, weeks before problems emerged with subprime mortgages that triggered the credit crunch, and two months before a run on deposits at Northern Rock Plc, Britain’s first casualty of the crisis.
“When I was appointed I told the board that I planned to serve as CEO for three years, and I intend to stick to that timetable” said Sants, 54, in the statement. “Those three years have encompassed the most extraordinary circumstances for a financial regulator, and I am very proud of the manner in which the FSA rose to the challenge of dealing with such unprecedented turbulence across global financial markets.”
The opposition Conservative lawmakers in the U.K. have pledged to abolish the FSA and carve up its duties should they win this year’s election, which must take place by June. They said they will return banking supervision to the Bank of England, arguing that the FSA’s lax oversight of banks contributed to the crisis.
The FSA was created by Prime Minister Gordon Brown in 1997 in what was one of his first undertakings as the then-Chancellor of the Exchequer. The Labour government had swept to power the same year, promising to overhaul financial services so scandals like the collapse of Barings Plc and the closure of the Bank of Credit and Commerce International wouldn’t happen again.
‘Orderly Succession’
Brown’s spokesman Simon Lewis told reporters in London that there would be an “orderly succession” to appoint a replacement for Sants.
“Taken with the Conservative Party threat to break up the FSA, Hector Sants’s resignation risks the regulator being viewed as a lame duck,” said Jonathan Davies, a regulatory lawyer at London-based Reynolds Porter Chamberlain LLP. “This is not the environment in which the future of financial services regulation can be left hanging in the balance for months, it risks sowing too much confusion.”
Sants, a former executive at Credit Suisse Group AG, didn’t say where he would go after a period of six months’ leave that he must complete after departing. His resignation comes at a key time for regulation both in the U.K. and across the world, where policy makers are trying to grapple with rules in the wake of the worst financial crisis in a generation.
‘Dark Ages’
Sants has been critical of the Conservative plans in recent months, describing them in November as a “return to the dark ages.” He also said they made recruiting more FSA officials a challenge.
“Sants carried the can for failures at the FSA, but he did plenty of good stuff too,” said James Perry, a lawyer at Ashurst LLP in London. “As a poacher-turned-gamekeeper, he knew some parts of the market, particularly equity, very well indeed.”
A cross-party parliamentary committee criticized the FSA for “systematically failing” in its duty to supervise Northern Rock in January 2008. Since then, Sants made the FSA undertake an internal audit into what went wrong, and personally apologized for FSA failings.
He initiated a system of tougher, more intrusive regulation where the FSA scrutinizes all aspects of banks’ business models, from whom they hire to how much they pay them, saying last year that people “should be frightened” of the FSA.
‘Mixed Bag’
“In terms of his legacy it’s a mixed bag: he sharpened up and refocused the organization but as a result of the financial crisis, firms are struggling with a lot of heavier regulation that he is a proponent of,” said Ian Mason, a regulatory lawyer at London-based Barlow Lyde & Gilbert LLP, who left the FSA as an enforcement official in 2005. “He’s a very decent guy and popular with staff. He’s perceived as a good manager.”
His replacement will be chosen jointly by the U.K. Treasury and the FSA’s board. The Treasury declined to immediately comment on whether it will begin a selection process before the election, and the FSA said a replacement would be selected in due course.
“They may begin the wheels of it but candidates of standing will wait to see the outcome of the election and what the new role will entail,” Mason said of the selection process.
While Sants has no official deputy, the most senior FSA employees under him are Sally Dewar, managing director of risk; Jon Pain, managing director of supervision; and Mark Norris, the chief operations officer, according to the FSA’s Web Site.
‘Strong Purpose’
“He will leave behind an organization with strong purpose and clear strategy,” FSA Chairman Adair Turner said in the statement. “We will continue to work together to deliver the FSA’s reformed and intensive supervisory approach and drive forward the global regulatory reform agenda.”
Turner has been more visible than Sants in recent months on the world stage. Turner is heading a group at the Financial Stability Board, a collection of policy makers and regulators from the Group of 20 Nations, examining what to do about banks that are deemed too big to fail.
In addition to the Conservative plans to split up the FSA, the regulator also faces a new framework created by the European Union, which would bolster regional agencies’ powers to oversee banks, securities firms and insurers.
Sants had a career in the securities industry before joining the FSA in May 2004 as its managing director of wholesale and institutional markets. He was a regional CEO at Credit Suisse First Boston and worked previously with Donaldson Lufkin & Jenrette before it merged with CSFB in 2000.
He said in 2004 that he was joining the regulator as a committed Christian “to give something back to the system which had provided me with an interesting and worthwhile career.”
http://www.bloomberg.com/apps/news?pid=20601108&sid=a93hkb6y6smY
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