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

    MAS Amends Notice 610 on Reporting Templates for Banks in Singapore

    MAS published amendments to Notices 610 and 1003 related to submission of statistics and returns, along with the reporting templates and frequently asked questions (FAQs) associated with these Notices.

    January 24, 2020 WebPage Regulatory News
    News

    HKMA Updates Policy Module on Supervisory Review Process

    HKMA is issuing, by notice in the Gazette, revised versions of two Supervisory Policy Manual modules as statutory guidelines under section 7(3) of the Banking Ordinance. The Supervisory Policy Manual modules are CA-G-5 on “Supervisory Review Process” and SB-2 on “Leveraged Foreign Exchange Trading.”

    January 24, 2020 WebPage Regulatory News
    News

    PRA Amends Pillar 2 Capital Framework for Banks

    PRA published the policy statement PS2/20 that contains the final amendments to the Pillar 2 framework and provides feedback to responses to the consultation paper CP5/19 on updates related to Pillar 2 capital framework.

    January 23, 2020 WebPage Regulatory News
    News

    FED Proposes to Revise Information Collection Under Market Risk Rule

    FED proposed to revise and extend, for three years, FR 4201, which is the information collection under the market risk capital rule.

    January 22, 2020 WebPage Regulatory News
    News

    HKMA Consults on Stay Rules on Financial Contracts Under FIRO

    HKMA published proposals for making rules related to contractual stays on termination rights in financial contracts for authorized institutions under FIRO or the Financial Institutions (Resolution) Ordinance (Cap. 628).

    January 22, 2020 WebPage Regulatory News
    News

    MAS Amends Notices on Minimum Liquid Asset Requirements for Banks

    MAS published amendments to Notices 1015, 613, and 649 related to the minimum liquid assets (MLA) requirements.

    January 21, 2020 WebPage Regulatory News
    News

    APRA Publishes Submission on Fintech and Regtech

    APRA published its submission, to the Senate Select Committee, on financial technology and regulatory technology.

    January 21, 2020 WebPage Regulatory News
    News

    OSFI to Implement Operational Risk Capital Rules for Banks in Q1 2022

    OSFI decided to move domestic implementation of the revised Basel III operational risk capital requirements from the first quarter of 2021 to the first quarter of 2022.

    January 20, 2020 WebPage Regulatory News
    News

    ECB Consults on Guideline on Threshold for Credit Obligations Past Due

    ECB published a draft guideline, along with the frequently asked questions (FAQs), on the definition of the materiality threshold for credit obligations past due for less significant institutions.

    January 20, 2020 WebPage Regulatory News
    News

    OSFI Consults on Instruction Guide for Termination of Pension Plan

    OSFI is consulting on draft revisions to the instruction guide for termination of a defined benefit pension plan.

    January 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4529