Maybe fears of a UK talent exodus haven't been exaggerated after all

Now that the financial sector has had time to digest the FSA's vast and clause-ridden revised compensation code, the conclusion is that the UK will suffer and that UK banks will suffer most of all.

The FSA's guidelines stand out as a draconian doctrine on pay, while the US, Asia and other European nations have paid comparatively little attention to the G20 remuneration guidelines set out last month.

The result, according to furious (and anonymous) bankers quoted by the Telegraph is that firms in the UK will lose out on attracting and retaining key staff not hampered by the same pay restrictions.

"Everyone claims to agree that pay should be linked to long-term performance and should discourage irresponsible risk taking, but only the UK has actually set the link in stone. This leaves us vulnerable to key staff - who are operating at that high, internationally mobile end of the employment spectrum - being tempted away by offers from overseas competitors," said Angela Knight, chief executive of the British Bankers' Association.

So far, this echoes the sentiment expressed around this time last year, when the FSA released a revised version of the original code.

However, as Financial News reports, an exodus of talent from the UK isn't the only thing to worry about. The proposals also include plans to expand the geographical reach of the rules, meaning that a UK bank would have to apply the same restrictions on bonuses to its operations in the US or Asia as it would locally.

Not surprisingly, UK banks have taken the opportunity to voice their displeasure at the FSA's proposals. This month, both Barclays and Standard Chartered hinted that concerns over hardline regulation could mean they reconsider their UK HQ, and now HSBC has said it may review its London base.

But such threats could simply be an attempt to convince the FSA to soften its stance.

"We are currently still in a consultation period, so the banks are taking the opportunity to voice their disquiet over the proposals," says Chris Page, head of reward services at KPMG. "But there's no point in the UK setting a gold standard over bonus rules if other jurisdictions don't follow suit. As it stands, banks in the UK face a disadvantage attracting and retaining key talent unless the FSA proposals are universally adopted."

While UK banks and the European operations of US firms will be affected, banks with home operations on the continent currently have an advantage. As we've pointed out before, these banks are subject to the requirements in their home countries, which are currently significantly more lightweight than the UK regulations.