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
ESRB Advisory Scientific Committee Report on Exchange-Traded FundsRelated Articles
APRA Consults on Standard for Reporting of COVID-19 Loans
APRA issued a letter to authorized deposit-taking institutions announcing its intent to formalize the capital measures and reporting requirements for COVID-19 loans through temporary legislative instruments.
EBA Consults Industry on Use and Uptake of Regtech Solutions Across EU
EBA is inviting relevant stakeholders, such as financial institutions and information and communication technology (ICT) third-party providers, to share their views and experience on the use of regtech solutions through its regtech industry survey.
BoE Clarifies Approach to Treatment of Payment Holidays on Form PL
BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.
FASB to Conduct Post-Implementation Review of CECL Standard
FASB announced the launch of its new Post-Implementation Review (PIR) web portal.
EBA Guidance on Impact of CRR Quick-Fix on Reporting and Disclosures
EBA revised the draft implementing technical standards on supervisory reporting as part of the reporting framework 3.0.
ECB Examines ICAAP Practices of Banks in EU
ECB published report that presents a summary of the analysis conducted on the internal capital adequacy assessment process (ICAAP) practices of a sample of 37 "significant" banks.
BoE Provides Reporting Update on Form AS and Form FV
BoE updated the known issues document for the statistical reporting Forms AS and FV.
FED Announces Capital Requirements for Large Banks
FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020.
SRB Publishes Guidance on Implementation of Bail-In Tool
SRB published a set of documents to give operational guidance to banks on implementation of the bail-in tool.
BIS Publishes Update on G20 TechSprint Initiative
BIS published an update on the G20 TechSprint Initiative, which was launched in April 2020 and aims to highlight the potential for technologies to resolve regulatory compliance (regtech) and supervisory (suptech) challenges.
