UK calls for greater global regulation and curbs on executive pay

British prime minister and chancellor of the exchequer indicate they will be looking at how to develop global regulation in the wake of the financial crisis

MANCHESTER, UK – British prime minister Gordon Brown, in his speech at the Labour party conference this week, hinted new regulation should be introduced to curb “City excesses” and “risk taking”. Brown called for more transparency surrounding the decisions taken by bank directors and also criticised the City’s bonus culture, which he said should be based on hard work, effort and enterprise, not short-term speculative deals.

A more muted response on the issue of executive pay came in a speech from Alistair Darling, the chancellor of the exchequer, earlier this week, who said he would "look at" the culture of big bonuses that encouraged short-term risk-taking. The issue of excessive executive pay is one of the sticking points delaying approval of the Paulson Plan being debated in the US Congress at the moment. It is still unlikely governments will be able to legislate on private firms’ remuneration packages, but the current highly volatile situation could push some kind of reform on this issue through. The new chairman of the Financial Services Authority, Lord Adair Turner, commented it would continue to scrutinise bonuses and act on banks if they are not realistic about pay structures.

Both men have emphasised the need for a global solution to the latest financial crisis, and Brown also hinted the UK should think about moving away from a principles-based financial regulatory system to a more US-style rules-based system. Ironically, before the latest crisis erupted, the US had been pushing for a more principles-based and centralised system. This indicates not only the lack of any clear direction at the moment in either country but also the propensity for politicians to favour tough, knee-jerk reactions in crisis situations. The US is experiencing this right now, with Congress being pushed to adopt the Paulson Plan by this Friday.