The Financial Stability Board (FSB) has now published its fourth annual progress report on the implementation of its principles for sound compensation practices and their implementing standards, found here.
These principles and standards were issued in 2009 and can be seen to act as the basis of the EU’s CRD IV, AIFMD and UCITS V remuneration requirements. The report was prepared by the FSB's compensation monitoring contact group (CMCG) and focuses on:
- remaining implementation gaps;
- key challenges;
- evolving practices;
- compensation practices in relation to conduct risk and in the insurance sector.
The Report provides a helpful snapshot of the different G20 countries’ approach to remuneration in the FS sector.
- Most FSB jurisdictions have fully implemented the principles and standards for banks. The report contains a table showing national implementation (Annex B) and identifies remaining gaps in national implementation (Annex C).
- Oversight of compensation practices has now been fully embedded in bank supervisory frameworks in most jurisdictions.
- Supervisory focus is now on further improving the governance framework and the risk alignment of compensation.
- Risk alignment of compensation structures, at least for senior executives, has improved.
- Several jurisdictions (both EU and non-EU) observed an increase in the fixed portion of remuneration for 2014 compared to 2011.
- The link between compensation and risk governance frameworks is growing, although there remains room for improvement in developing quantitative and qualitative measures to assess changes in risk-taking behaviour.
- Existing compensation provisions, if properly applied, should enable firms to effectively prevent and deter misconduct.
- There are important differences in the implementation of the principles and standards in the insurance sector across jurisdictions. That said, compensation practices of internationally active insurers are fairly well-aligned across regions.
The report identifies gaps in each country’s implementation which can be helpful. It also publishes a table which identifies whether the FSB principles have been implemented by regulation or supervisory oversight and also which countries have not adopted some of the principles. Turkey and Indonesia have yet to adopt a number of them. The review does not give an assessment of the extent to which the principles are implemented.
The FSB has stated that, through the CMCG, it will now only prepare progress reports on the implementation of the principles and standards every two years.