FSA introduced a new code that will require large banks, building societies and broker dealers in the UK to establish, implement and maintain remuneration policies consistent with effective risk management. The new code sets a better balance and accords with the approach being taken internationally. The code aims to achieve two objectives:
- that boards focus more closely on ensuring that the total amount distributed by a firm is consistent with sustainability and good risk management; and
- that individual compensation practices provide the right incentives.
Firms are expected to provide FSA with a remuneration policy statement by the end of October. Non-compliant firms could face enforcement action or, ultimately, be forced to hold additional capital should they pursue risky processes.