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

    FSI Paper Examines Use of Suptech Initiatives by Financial Authorities

    The Financial Stability Institute (FSI) of BIS published a paper that examines the suptech developments by analyzing suptech initiatives of 39 financial authorities globally.

    October 17, 2019 WebPage Regulatory News
    News

    US Agencies Consult on Policy Statement on Allowance for Credit Losses

    US Agencies (FDIC, FED, NCUA, and OCC) are consulting on the policy statement on allowances for credit losses and on the guidance on credit risk review systems.

    October 17, 2019 WebPage Regulatory News
    News

    PRA Consults on Approach to Supervising Liquidity and Funding Risks

    In consultation paper (CP27/19), PRA published a proposal (CP27/19) to update the supervisory statement SS24/15 on the PRA approach to supervising liquidity and funding risk.

    October 17, 2019 WebPage Regulatory News
    News

    FSB Report Examines Implementation and Impact of G20 Financial Reforms

    FSB published fifth annual report on the implementation and effects of the G20 financial regulatory reforms.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Launches Consultation on Comprehensive Pillar 3 Disclosures

    EBA proposed the new comprehensive implementing technical standard (ITS) for public disclosures by financial institutions.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Consults on Revised Technical Standards on Supervisory Reporting

    EBA launched a consultation on the revised implementing technical standards, or ITS, on supervisory reporting.

    October 16, 2019 WebPage Regulatory News
    News

    BoE and FCA Examine Use of Machine Learning in Financial Sector in UK

    BoE and FCA published a report on the results of a joint survey by BoE and FCA in 2019 to better understand the use of machine learning in the financial services sector in UK.

    October 16, 2019 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel Framework

    BCBS published the seventeenth progress report on adoption of Basel regulatory framework.

    October 16, 2019 WebPage Regulatory News
    News

    APRA Proposes Measures to Strengthen Capital for Bank Depositors

    APRA proposed changes to APS 111, which is the prudential standard on measuring capital adequacy and establishes the criteria for regulatory capital requirements of authorized deposit-taking institutions.

    October 15, 2019 WebPage Regulatory News
    News

    EIOPA Consults on Technical Advice for the 2020 Review of Solvency II

    EIOPA is consulting on an opinion that sets out technical advice for the 2020 review of Solvency II.

    October 15, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3981