* Capital surcharges on big banks in UK won't be automatic
* FSA to align UK bank bonus rules with EU package
* FSA to scale back some supervision due to complex revamp
* Sants: HFT not a concern but needs better supervision
* Unconvinced on need for commodities position limit powers
(Adds banking industry reaction, more background on U.S.)
By Huw Jones
LONDON, Dec 13 (Reuters) - Britain is unlikely to go it alone and slap extra capital requirements on big banks if there is no global deal on surcharges, the country's top financial supervisor said on Monday.
Britain, the United States and Switzerland are trying to persuade their Group of 20 (G20) partners that big, systemically important firms (SIFIs) should carry extra capital as their failure could destabilise markets and even need public aid.
Germany, France and Japan, however, are opposed, forcing talks on a global "too big to fail" package well into 2011.
"It's not a given that we would automatically be superequivalent to whatever is determined globally," Financial Services Authority (FSA) Chief Executive Hector Sants told Reuters.
"We do understand the importance of large global institutions operating in London having a level playing field globally so we would not likely be superequivalent or gold plate," Sants said.
"But you would not expect us to make a final conclusion on that until we know where the international negotiations have ended up."
Bankers welcomed Sant's flexibility over surcharges.
"We would not be happy with the FSA or any other national regulator imposing additional requirements on top of regulation already stipulated," said Rob McIvor, spokesman for the Association for Financial Markets in Europe (AFME) which represent the world's major banks operating in the region.
A more rounded approach was needed on SIFIs such as flexible supervision, McIvor said.
Britain is scrapping the FSA and transferring its powers to supervise big banks to a prudential regulation authority (PRA) at the Bank of England that Sants will head from 2012. The aim is to avoid a repeat of the FSA's failure, like regulators across the world, to spot the crisis coming.
He sketched out at a Reuters Newsmaker event on Monday how this compares with how the FSA operates now.
A key aim will be to educate the public to expect the PRA to allow firms, especially small to medium sized ones, to go bust and not see this as a regulatory failure unless the economy is destabilised and taxpayer aid is needed.
"The PRA will not be attempting to pursue a 'zero failure' regime ... We are working to have the goal of ensuring that all firms, however large, can fail," Sants said.
The transition to the new regime is creating stress with staff turnover at its highest in almost two years.
The FSA will be "scaling back" some supervisory activities during the complex transition, such as cutting the amount of time spent on "pre-emptive routine supervision" of firms whose failure would have little impact on the financial system.
Sants expects the "twin peaks" approach of the Bank supervising bigger firms and a new consumer protection and markets authority (CPMA) overseeing the rest to start evolving from next April.
The CPMA will need more rules-based powers of intervention and disclosure if it is to fulfill its goals, Sants said.
Michael McKee, a financial services partner at lawfirm DLA Piper who was in the Newsmaker audience, welcomed Sants' elaboration on how the new UK supervisory framework will work.
"Of particular interest is the call for new early intervention powers for the CMPA in the retail space and the indication the CPMA wil intervene more in conduct of business arrangements in the wholesale markets," McKee said.
BONUS RULES EFFECTIVE
On Friday the Committee of European Banking Supervisors (CEBS), which includes the FSA, agreed to introduce the world's toughest curbs on bank bonuses from January.
Sants said they are a "sensible package" that was effective in aligning risk taking at banks to pay.
"You can expect the FSA will be publishing its guidelines shortly before the end of the month to broadly be in line with the CEBS framework," Sants told Reuters Insider.
The FSA supervises the European Union's top financial centre and the bloc's executive has published plans to reform how shares, bonds, commodities and derivatives are traded.
Brussels wants to crack down on ultra fast high-frequency to complete trades in milliseconds, raising concerns about technology getting out of control as seen with the "flash crash" in Wall Street blue chips in May.
France wants a tough clamp down but Sants said high-frequency trading (HFT) is "valuable and justifiable" but needs closer supervision.
U.S. lawmakers and regulators are studying what steps to take to tackle HFT and other trading practices to avoid another flash crash.
"I have not seen an argument per se that says the concept is necessarily something the regulators should somehow or other ban. The question is are we adequately mitigating the risk this application creates," Sants said. (Additional reporting by Paul Hoskins; Editing by Louise Heavens and Jon Loades-Carter)