In September 2009, the Financial Stability Board (FSB) launched a peer review on the implementation of the Financial Stability Forum's Principles for Sound Compensation Practices and their Implementation Standards.

The FSB has now published a report that sets out the findings and conclusions of the peer review.

Significant progress has been made in incorporating the Principles and Standards into domestic regulatory and supervisory frameworks. However, full implementation is far from complete. The FSB believes that sustained efforts by firms and authorities are needed to effectively align compensation structures in major financial institutions with prudent risk-taking.

The report recommends additional measures to support the emergence of sound practice and further convergence. In addition to continuing to roll out national policies, such measures include:

  • Enhanced supervisory cooperation on compensation with regard to cross-border firms, especially across the major financial centres.
  • Support in the development of sound industry practices, notably in the area of risk-adjustment of compensation.
  • Increased coverage of significant non-bank financial institutions.

The FSB states that it will conduct a follow-up review on compensation in one year, by which time more information will have become available from which to judge the change in the industry and the impact of national implementation. To support the next review, the FSB will also develop criteria to assess implementation progress.

View Thematic Review on Compensation - Peer Review Report, 30 March 2010