Bonus crackdown plan 'dangerous'

Sir George voiced concerns about the government's plans

Interfering with bankers' contracts is a "dangerous route to go down", a former chairman of Royal Bank of Scotland has told the BBC.

Sir George Mathewson said that he thought the Financial Services Authority (FSA) already had enough powers to regulate bonuses.

The government plans to give the FSA the power to cancel any pay deals which appear to reward undue risk-taking.

But Sir George said he feared the move would interfere with the rule of law.

FROM THE TODAY PROGRAMME More from Today programme

"Interfering with contracts that have been reached between willing participants is a somewhat dangerous route to go down," Sir George said.

"I also think the FSA has enough tools already in order to ensure bonus systems which could be said to threaten the [overall financial] system should not exist."

However, John McFall, chairman of the Treasury Committee, said the move would put the FSA on the front foot "whereas in the past... it's been on the back foot".

The government's proposals will be included in the Financial Services Bill, which will be part of the Queen's speech on Wednesday.

The bill is also set to bar financial institutions from encouraging customers to borrow more than they can afford by sending out unrequested credit card cheques.

And it will enable bank customers to join forces in class actions to demand compensation for excessive bank charges.

Increased powers

On Sunday, City minister Lord Myners said a crackdown on incentives that lead bankers to do "reckless things" was needed to make the banking system more accountable and more secure.

But Angela Knight, chief executive of the British Bankers' Association, said the UK had already taken strong steps to address remuneration, adding that any legislation had to take into account its impact on the UK as a global financial centre.

The government also wants to give the FSA the power to suspend firms from specific areas of business as a form of punishment for misbehaviour, according to the Financial Times. Currently the regulator can only suspend firms for risk-based reasons.

The FT also said the Bill would increase the amount of time the FSA has to carry out investigations from two years to four years.