September 18, 2009 / 4:10 PM / in 8 years

Ottawa pushes for tougher banker pay rules at home

OTTAWA (Reuters) - Canadian banks may be required to defer some executive bonuses, Finance Minister Jim Flaherty said on Friday, as he outlined new rules aimed at discouraging excessive risk-taking and preventing future financial crises.

Flaherty told reporters that Canadian regulators were in the process of implementing guidelines laid out earlier this year by the Financial Stability Board (FSB) -- made up of G20 central bankers, regulators and finance ministry officials.

“One of the major things is to spread out bonuses so that bonuses are not paid for short-term profit, which was one of the issues that led to the crisis in the past year,” he said.

“That’s our position.”

Next week’s G20 summit in Pittsburgh is set to focus on tougher financial regulations. European Union leaders agreed on Thursday to seek curbs on bankers’ bonuses at the meeting.

Canada has been opposed to an absolute cap on bankers’ pay but Flaherty has said previously that regulators are working on a three-year model for deferring bonuses. That would result in traders not receiving their full reward for three years, with the possibility of having it revoked if the transaction that was profitable in the short term turned out to be a loss-maker over a longer period.

It was not clear how regulators might enforce this, but government officials have suggested that the onus would be on bank boards of directors to ensure that compensation practices do not encourage risky behavior.

Even though Canadian banks have been famously solid throughout the financial crisis -- and bonuses are not a contentious issue domestically because banks have not had bailouts -- Flaherty said he was committed to fulfilling whatever new global standards emerge.

The banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), said it was still awaiting further guidance from world leaders before taking steps.

“On the issue of compensation, OSFI is waiting for the G20 leaders to announce what measures they will choose to adopt,” said Jean Paul Duval, a spokesman for the regulator.

“Once the decisions have been taken, we will work with our financial institutions to implement those decisions in a manner best suited to our Canadian institutions,” Duval said.

The FSB will provide detailed guidelines in time for the G20 summit on Sept 24-25 for national supervisors to enforce the broad principles on remuneration the G20 adopted in April.

One regulatory expert, who asked not to be named, said OSFI would likely start by asking institutions to voluntarily comply with new guidelines on pay but the regulator could get tougher if they failed to comply.

Flaherty said Ottawa would keep tweaking its banking rules, even as other countries try to catch up by fixing their own supervision.

“There’s always a risk of being complacent. I can tell you we’re not complacent,” he said.

Flaherty will attend the Pittsburgh summit along with Prime Minister Stephen Harper.

Reporting by Louise Egan; editing by Rob Wilson

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