In the UK, the Financial Services Authority (FSA) has told banks that if their bonuses do not comply with regulations, the face the forfeiture of their banking licenses:

In an extraordinary ultimatum that has shocked some of the City’s biggest companies, the Financial Services Authority (FSA) told bank bosses that 60pc of all pay must be deferred, with no exceptions, even for those whose contracts conflicting with the edict.

Many of the global players have in recent weeks made representations to the City watchdog, in particular about pre-existing employment contracts that guarantee bonuses over a year or more. But their appeals have been met with the FSA’s toughest yet response.

One pay executive in a major bank told The Daily Telegraph: “The message came back that while the FSA agreed that it does not have jurisdiction over contractual law, it does have jurisdiction over issuing bank licences in London, and that we should go away and unwind the contracts.“

Bankers at Merrill Lynch are among the first affected. Those with pre-existing contracts were told about the FSA’s tough stance on Friday when their bonuses were agreed.

(emphasis mine)

This is very canny on the part of the FSA. They aren’t instructing banks to break contracts, which might create all sorts of problems with EU or WTO “free trade courts”, they are saying, “This is the rule, if you don’t comply, bye bye licens(c)e.”

If an employee refuses to modify their contract, it’s pretty clear that they are deliberately engaging in an activity which would cause the loss of their firm’s banking license, which in a sane universe is grounds for dismissal.

I wish that I lived in a country with meaningful banking regulations.