New Swiss bank pay rules to curb risk-taking

People walk past a branch of Credit Suisse bank in Zurich in this February 9, 2009 file photo. Switzerland's biggest banks and insurers will have to adhere to new compensation rules requiring them to defer the bulk of managers' bonuses and to strictly align pay to performance, Swiss regulators said on Wednesday.

ZURICH (Reuters) - Financial regulators on Wednesday told Switzerland's biggest banks and insurers to defer the bulk of their managers' bonuses and better match pay against performance under new rules aimed at curbing risky investing.

The new rules, to come into force on January 1, 2010, placed Switzerland in a growing group of countries moving the focus of compensation away from a short-term culture blamed for the financial crisis toward longer-term sustainable profitability.

"Remuneration schemes can create false incentives which may lead to inappropriate risks being entered into, threatening the business and profitability of a financial institution and, at the end of the day, its stability," regulator FINMA said.

FINMA said there would be no cap on executive bonuses and that the new system would apply to the country's seven largest banks and five biggest insurers. It did not name them.

The Swiss regulator also said it would welcome the introduction of clawbacks on bonuses when performance was poor, such as was already the case with the country's top two banks UBS and Credit Suisse.

Responding to criticism from the financial industry, FINMA said the rules were compulsory only for firms with at least 2 billion Swiss francs ($1.98 billion) in equity capital or as solvency.

Analysts said base salaries, stuck for years at large Swiss banks, would rise as the importance of bonuses diminishes. This would limit the flexibility the banks have enjoyed until now and also change the way firms spread compensation costs over time as payouts are made more in cash than shares.

The new rules are expected to apply to UBS, Credit Suisse and also large insurers such as Swiss Life, Swiss Re and Zurich Financial Services, analysts said.

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Leaders from the Group of 20 nations adopted guidelines on curbing bonuses at a meeting in Pittsburgh in September after countries like Germany, Britain and France had already started to take regulatory action to curb excessive bonuses.

"There is a lot of pressure to do something on the compensation front," said Andreas Venditti, a banking analyst at ZKB. "Different countries are all trying to introduce some new rules. At first sight, the Swiss rules appear to be consistent with international guidelines."

Credit Suisse last month unveiled a new compensation scheme that it said would fully comply with new G20 standards.

UBS, which received state aid to overcome the subprime crisis last year, has said in an internal memo seen by Reuters it also plans to change its compensation structure. Hefty bonuses and salaries at UBS caused public outcry in Switzerland, leading former chief Marcel Ospel and other ex-board members to return 33 million Swiss francs ($32.71 million) in payments.

UBS was also sharply criticized earlier this year for increasing bankers' pay. Newly-appointed new Chief Executive Oswald Gruebel said the bank had to pay market level salaries to retain stuff.

(Editing by David Cowell)

($1=1.009 Swiss Franc)