Swiss banks face tough rules

ZURICH: 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.

With the new rules, Switzerland is joining a growing number of countries choosing to regulate the way top bankers are paid to discourage risky investment decisions inspired by short-term gains rather than sustainable profitability.

The new Swiss rules will come into force on Jan 1, 2010 for the country's seven largest banks and five biggest insurers, Swiss regulator FINMA said in a statement, without naming them. There will be no cap on executives' bonuses, FINMA added. "The experience of last year has showed us that compensation schemes play a role in the risk management of financial institutions," FINMA said in its statement. "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," it said.