Featured Product

    MAS Publishes Paper on Incentive Structures in Banking Industry

    March 28, 2019

    MAS published an information paper on incentive structures in the banking industry. MAS has been intensifying the supervisory focus on financial institutions’ culture and conduct. As part of these efforts, MAS conducted a series of thematic inspections on incentive structures of selected banks in 2018, recognizing the fundamental role of incentives in influencing behavior and outcomes. The focus of MAS on incentive structures is intended to ensure that bank practices promote ethical behavior, which considers customer interests and prudent risk-taking for long-term financial soundness, to achieve a healthy organizational culture.

    The inspections covered incentive structures of front office staff in the Private Banking, Global Markets, and Corporate Banking businesses. They included assessments of the banks’ governance over, and frameworks and policies for, performance evaluation, remuneration, and consequence management and whether these were aligned with the FSB Principles and Standards for Sound Compensation Practices. MAS also held industry roundtable and townhall events in 2019 to share observations and exchange views with the industry following the thematic inspections. This paper sets out several desired outcomes for incentive structures that MAS expects to see in banks. In particular:

    • Performance evaluation of staff takes into consideration both the “what” (ability to meet financial targets) and the “how” (how these targets are achieved). There is a systematic framework to assess and align staff’s behavior and conduct with the values espoused by the organization and to send a strong signal on the importance of ethical conduct vis-à-vis financial targets.
    • Remuneration frameworks adequately consider behavioral and conduct factors, in addition to financial targets. In other words, staff’s behavior and conduct have a strong and "impactful" influence on their remuneration.
    • Ethical behavior that considers customer interests and demonstrates prudent-risk taking is actively promoted and celebrated. Concurrently, there are clear frameworks and processes to deter staff from, and hold them accountable for, misconduct through disciplinary actions and compensation adjustments.

    MAS expects banks to benchmark themselves against the desired outcomes set out in the paper. Banks should assess the ability of its internal controls and processes to achieve these outcomes effectively and take steps in a risk-appropriate manner to address gaps, if any. Banks have the latitude to explore different means of achieving the desired outcomes, taking into account their specific organizational structure, business model, and risk profile. In addition, while this information paper is based on the MAS’s thematic inspections of banks, the desired outcomes and good practices are relevant and applicable to insurance companies as well. Insurance companies should, therefore, incorporate lessons from this paper in a risk-based and proportionate manner, giving proper regard to the profile of their business activities and customers.

     

    Keywords: Asia Pacific, Banking, Insurance, Incentive Structures, Corporate Governance, Proportionality, Conduct Risk, Remuneration, Operational Risk, MAS

    Related Articles
    News

    SEC Adopts Rules and Amendments Under Regulatory Regime for Swaps

    SEC announced that it took a significant step toward establishing the regulatory regime for security-based swap dealers (SBSDs) by adopting a package of rules and rule amendments under Title VII of the Dodd-Frank Act.

    September 19, 2019 WebPage Regulatory News
    News

    APRA Revises Standard on Margin Rules for Uncleared Derivatives

    APRA revised CPS 226, which is the prudential standard on margin and risk mitigation requirements for non-centrally cleared derivatives.

    September 19, 2019 WebPage Regulatory News
    News

    BIS Formalizes Agreement to Set Up Innovation Hub in Hong Kong SAR

    BIS and HKMA signed the Operational Agreement on the BIS Innovation Hub Center in Hong Kong Special Administrative Region (SAR).

    September 18, 2019 WebPage Regulatory News
    News

    PRA Proposal on Probability of Default and LGD Estimation

    PRA proposed, via the consultation paper CP21/19, an approach to implementing EBA’s recent regulatory products relating to Probability of Default (PD) estimation, Loss Given Default (LGD) estimation, and the treatment of defaulted exposures in the internal ratings-based (IRB) approach to credit risk.

    September 18, 2019 WebPage Regulatory News
    News

    PRA Issues Consultation on Prudent Person Principle Under Solvency II

    PRA, via the consultation paper CP22/19, has set out its proposed expectations for investment by firms, in accordance with the Prudent Person Principle (PPP).

    September 18, 2019 WebPage Regulatory News
    News

    CFTC Extends Comment Period for Proposals on Cross-Border Clearing

    CFTC announced that it is extending, until November 18, 2019, the comment period for the proposal for an alternative compliance framework for derivatives clearing organizations (DCOs) that are organized outside of U.S. and that do not pose substantial risk to the U.S. financial system.

    September 18, 2019 WebPage Regulatory News
    News

    BNM Publishes Financial Stability Review for the First Half of 2019

    BNM published Financial Stability Review for the first half of 2019.

    September 18, 2019 WebPage Regulatory News
    News

    APRA Observations from Thematic Review on Recovery Plans of Insurers

    APRA issued a letter to general insurers and life insurers, outlining observations from a recent thematic review on recovery planning by insurers.

    September 18, 2019 WebPage Regulatory News
    News

    FASB Issues Summary of Tentative Board Decisions at September Meeting

    FASB published a summary of the tentative decisions taken at its Board meeting in September 2019.

    September 18, 2019 WebPage Regulatory News
    News

    EIOPA Forms Consultative Expert Group on Digital Ethics in Insurance

    EIOPA established the Consultative Expert Group on Digital Ethics in Insurance to assist EIOPA in the development of digital responsibility principles in insurance.

    September 17, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3848