The Financial Stability Board (FSB) published the fourth annual progress report on Implementing the FSB Principles for Sound Compensation Practices and their Implementation Standards which aim to reduce incentives for excessive risk-taking arising from the structure of compensation schemes in significant financial institutions.

Almost all FSB jurisdictions have now fully implemented the Principles & Standards for banks. Most jurisdictions have embedded oversight of compensation practices in bank supervisory frameworks. The report finds important differences between jurisdictions in the implementation of the Principles and Standards in the insurance sector.

The FSB’s Compensation Monitoring Contact Group will undertake further work in five areas:

  • CMCG will follow up on these certain recommendations for action by national authorities from the 3rd progress report;
  • Supervisory authorities will coordinate via CMCG to explore the use of indicators to monitor the effective risk alignment of compensation structures;
  • The FSB will continue to monitor compensation practices in other financial sectors;
  • CMCG will continue to collect information and assess the need for strengthening disincentives to misconduct through compensation-related tools; and
  • CMCG will re-visit the issue of material risk-takers in 2016-2017.