In February 2009, the FSA published a draft Code of practice on remuneration policies (the Code). The FSA has now published Consultation Paper 09/10: Reforming remuneration practices in financial services (CP09/10). In CP09/10 the FSA formally consults on incorporating the Code into the FSA Handbook and applying it to large banks, building societies and broker dealers.
In CP09/10 the FSA also reports on the findings of its review of remuneration practices in a group of major UK-incorporated banks and building societies, which it undertook between November 2008 and January 2009.
The FSA is also inviting for general discussion on whether the Code should be extended to other FSA authorised firms. However, the FSA is not consulting on this question at this stage. CP09/10 is set out as follows:
- Chapter 1 provides an overview of the FSA’s consultation.
- Chapter 2 considers why change to the status quo is necessary. It notes the gaps in the current regulatory requirements which the FSA is seeking to fill. It also includes a section on international developments on remuneration, how the FSA’s proposals tie into these developments and the implications of its proposals for London’s competitive position.
- Chapter 3 sets out the FSA’s findings from its review of remuneration practices in the UK market.
- Chapter 4 analyses the failure in the current market and, in particular, why current practices pose a problem and why regulation can help address them.
- Chapter 5 describes the new framework the FSA is proposing. It also sets out how firms would be affected by the Code.
- Chapter 6 contains the Discussion Paper section of the paper. It addresses the question of whether the Code should be extended to all FSA authorised firms.
- Annex 1 lists the consultation questions.
- Annex 2 includes the FSA’s proposed Code as extracted from the draft FSA Handbook text. This will replace the Code that was published on 26 February 2009.
- Annex 3 expands on Chapter 2 by setting out the current national regulatory requirements on remuneration issues.
- Annex 4 contains a cost benefit analysis of the FSA’s proposals.
- Annex 5 analyses the compatibility of the FSA’s proposals with its statutory objectives and the principles for good regulation.
- Appendix 1 contains the draft text that is proposed to be used to incorporate the draft Code (as described in Annex 2) into the FSA Handbook.
Comments on CP09/10 are due by 18 May 2009 for the consultation questions and by 18 June 2009 for the questions for discussion.
View CP09/10: Reforming remuneration practices in financial services, 18 March 2009