30 August 2017

EBF response to the FSB consultation on sound compensation practices

The European Banking Federation has responded to the consultation of the Financial Stability Board on “Supplementary Guidance to the FSB Principles and Standards on Sound Compensation Practices.”

EBF considers that the Board of directors at Group level should be responsible for reviewing and validating the Group compensation policy. The policy and principles validated by the Board of directors at Group level could be adapted by each subsidiary according to any necessary modification, in particular to accommodate differences in local legislation. The operational implementation of these compensation principles, the day-to-day monitoring of the compensation policy and the effective management of compensation and misconduct risk should remain the duty of senior managers.

All three tools proposed to address misconduct:

• in-year adjustment,
• malus, and
• clawback,

can be used to address misconduct.

EBF believes that combination of those three tools (or two, in countries where clawback provisions are not allowed) is enough and appropriate to address misconduct situations. Moreover, EBF considers that the variable compensation should be sufficient enough to be adjusted in case of economic downturn and/or in case of misconduct to have material impact on employees’ behaviour.

Finally, EBF considers that compensation is important to address misconduct but should not be the only key driver to address conduct risk. Indeed, a strong governance process with the promotion of compliance and risk culture for all Group employees with a clear communication of Group Code of Conduct requirements including identification of bad and good behaviour, and mandatory training (including via e-learning) on conduct expectations together with the promotion and reinforcement of positive employee behaviour on risk and compliance management are also relevant and efficient means to address misconduct risk and to improve institutions’ conduct culture.

Full response

© EBF