The UK Financial Services Authority has trimmed its expected code of guidance on bankers’ pay, dropping expected rules requiring a certain proportion of bonuses is deferred. While insisting that it will require banks to hold more capital if it judges that incentives encourage risk, it is otherwise a non-prescriptive set of regulations.

Writing in the Financial Times on 12 August, Hector Sants, chief executive of the FSA, downplayed the significance of bankers’ remuneration in creating the credit crisis, even though pay comprises the vast bulk of investment banks’ turnover.

He wrote: ‘We believe it [individual compensation] should be seen as a contributory factor but certainly not as the principal cause. The failures in the global regulatory policy framework and poor judgments by all – including regulators, central banks, governments and consumers – were, in our view, far more significant.’

As such, he sought to separate the question of pay from the ideology that guided governance and regulation of the banks. Yet the assumptions guiding pay, securitisation, and markets all formed part of mechanistic, short-term assumptions that guided the governance of the banks.

He offered no evidence for the view that incentives were 'certainly not' the principal cause of high-risk trading, and he sought to portray concern over very high bonuses as a moral one - even though the potential for personal enrichment over a short timespan can cause incentives to disregard the long-term health of the organisation itself as well as the economy.

The FSA rule on increasing capital to cover enhanced risk therefore represents a single policy to govern a complex, inter-related area. This is consistent with the governing ideology that pay and human capital are at arm’s length from the business, rather than at the heart of it. Given the complexity and opacity of much trading, it is likely to prove impossible for the FSA to gauge the extra capital required, heightening the risk that high bonuses will incentivise a re-run of the credit crisis.