FSB Consults on Use of Compensation Tools to Address Misconduct
FSB published, for public consultation, the draft supplementary guidance to the FSB Principles and Standards on sound compensation practices. Once finalized, the guidance will provide firms and supervisors with a framework to consider how compensation practices and tools, such as in-year bonus adjustments, malus, and clawback, can be used to reduce misconduct risk and address misconduct incidents.
The guidance, like the FSB Principles and Standards, will apply to financial institutions that competent authorities consider significant for the purpose of the Principles and Standards. The guidance does not establish additional principles or standards beyond those already set out in the FSB Principles and Standards on sound compensation practices and it has been developed in the form of recommendations on better practices. It highlights eight considerations that are relevant for firms and supervisors in terms of governance of compensation and misconduct risk, effective alignment of compensation and misconduct risk, and supervision of compensation and misconduct risk. This consultation is part of FSB’s broader misconduct workplan, which was launched in May 2015. FSB also plans to publish a progress report on the overall implementation of its Principles and Standards on compensation, in advance of the G20 Leaders’ Summit in Hamburg in July.
The proposed guidance was developed in collaboration with the standard-setting bodies and supplements the FSB Principles and Standards on sound compensation practices, which were published in 2009, in the aftermath of the global financial crisis. These Principles and Standards have been implemented across FSB member jurisdictions. Compensation tools, along with other measures, can play an important role in addressing misconduct risk by providing both ex ante incentives for good conduct and ex post adjustment mechanisms that ensure appropriate accountability. To ensure such accountability, firms should have tools available to consider using when misconduct occurs. Therefore, in 2016, FSB agreed to develop guidance on better practices regarding the application of the Principles & Standards to misconduct risk.
Related Links
Consultation on Compensation Tools (PDF)
Principles for Sound Compensation Practices
Implementation Standards for the Principles
Comments Due Date: August 30, 2017
Keywords: International, FSB, Banking, Insurance, Compensation Practices, Misconduct Risks
Previous Article
IMF Reports on 2017 Article IV Consultation with ChinaRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.