GUEST COMMENT: The UK now has the most punitive banking pay rules in the world

Following last week's finalisation of FSA's remuneration code, the UK financial services industry now has the world's toughest pay rules.

Retaining talent in a sector where financial reward is often the main motivator and workers are internationally mobile will be more challenging than ever. It remains to be seen how London's lure as Europe's dominant financial centre will be affected as the reality of the pay changes begins to bite. A critical factor will be how quickly other EU states act to implement the EU guidelines, and how regulation develops outside the EU.

To the extent that there is good news for the City of London, it is that the FSA has only made very limited changes to the Code wording in light of the CEBS Guidelines on pay.

Firms in London will still need to take CEBS into account, but by sticking with the original wording the FSA has more leeway for sensible interpretation on some of the more contentious issues relating to retention periods for shares, and dealing with tax liabilities on shares that cannot be sold.

Nevertheless, the changes since July's draft remuneration code will mean a greater number of individuals are affected by the regulation and to a larger extent.

While the group of employees classified as 'code staff' has been limited to material risk takers, there is confirmation that some rules will now be applied on an institution-wide basis. These include the restriction of bonus guarantees to new hires for the first year of employment only, and the expectation that deferral policies should apply in some form across firms.

The FSA have provided a good deal of clarity as to how firms can apply the rules around remuneration structures proportionally according to their size and risk profile by breaking down the industry into a number of tiers. All but the smallest banks, building societies, credit institutions and broker dealers will find themselves unable to escape the strict requirements around deferral and payments in shares. However asset managers and other firms not engaging in proprietary activity will breathe a collective sigh of relief at not having to comply with these areas of the code.

Despite extensive lobbying, the enforcement date for the new rules remains 1 January. This leaves firms just 7 working days to implement the rules, including changing pay structures at the height of the bonus season. Thankfully there are some transitional arrangements for firms that were not subject to the code before the July draft, but a lot of people are going to be missing Christmas this year.