FSB Assesses Implementation of Compensation Standards and Principles
FSB published the sixth progress report on the implementation of its principles and standards for sound compensation practices in financial institutions. The report assesses how compensation practices have evolved since 2009. The progress report finds that FSB jurisdictions implemented the principles and standards for sound compensation for all banks that are considered significant for the purpose of the principles and standards. While most banks have put in place practices and procedures that reduce the potential for inappropriate risk-taking, their effectiveness is still being tested. FSB also published a document that provides links to information on the FSB member jurisdictions’ national regulation and supervisory guidance on compensation.
The report finds that, at most banks, further work is required to validate that practices and procedures operate effectively and cover all compensation-related risks. International supervisory dialog facilitated increased attention to compensation design and implementation, contributing to better practices. Authorities remain focused on compensation practices, with many of them incorporating assessment of compensation practices as part of the ongoing supervisory review processes. The report highlights that for significant banks a number of changes have taken place. Boards appear more active and engaged and compensation processes are now conducted with greater oversight. Compensation arrangements now have longer time horizons, include mechanisms that better align them with effective risk management practices and include a wider range of financial and non-financial risk assessment criteria. Moreover, in recent years, there has been an increased focus on compensation as a tool to address conduct risk, along with a greater emphasis on how results are achieved.
The report assesses several jurisdictions, including Argentina, Australia, Brazil, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Switzerland, Turkey, United Kingdom, and the United States. The FSB principles and implementation standards are intended to apply to financial institutions that are significant for the purposes of compensation standards including banks, insurers, and asset managers. In most jurisdictions, the identified institutions are mainly in the banking sector. Fewer jurisdictions have implemented the requirements for the insurance and asset management sectors. The challenge now is to develop frameworks for assessing the effectiveness of compensation policies and practices in balancing risk and reward. As supervisors continue to monitor compensation practices, they will need to ensure that compensation remains aligned with prudent risk-taking and fully reflects the evolving risks and the new areas of vulnerabilities as they emerge.
Related Links
- Press Release
- Progress Report (PDF)
- National Regulation (PDF)
- Principles for Compensation Practices (PDF)
- Implementation Standards for FSB Principles (PDF)
Keywords: International, Banking, Insurance, Securities, Compensation Practices, Progress Report, Operational Risk, Conduct Risk, FSB
Previous Article
EIOPA Forms Consultative Expert Group on Digital Ethics in InsuranceRelated Articles
EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
EP Reaches Agreement on Corporate Sustainability Reporting Directive
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
PRA Consults on Model Risk Management Principles for Banks
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
EC Regulation Amends Standards for Calculating Credit Risk Adjustments
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
BIS Hub Updates Work Program for 2022, Announces New Projects
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
EIOPA Consults on Review of Securitization Framework in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
UK Authorities Issue Regulatory and Reporting Updates for Banks
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
BCBS Issues Climate Risk Principles while HKMA Expresses Its Support
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.
