“Asymmetrical structures where traders do not bear the consequences of losses is a risk to shareholders” FSA Chief Executive Hector Sants said recommending deferred compensation with claw back as a possible solution.
“Asymmetrical structures where traders receive immediate reward and do not bear the consequences of losses is a risk to shareholders” FSA Chief Executive Hector Sants said recommending deferred compensation with claw back and the increased use of share options as a possible way to tackle this problem.
“I do believe the regulators need to consider the risk of such structures when judging the overall risk of an institution”, Sants added. “The assessment of remuneration structures is part of our supervisory approach and we will emphasise this more in the future.”
Speaking at the Securities and Investments Institute Annual Conference, Sants also outlined that the preliminary focus with regard to liquidity management should be on scenario planning and on stress testing. The FSA plans to come forward with a proposal in September this year.
Other issues the FSA is concentrating on relate to the increase in firms’ funding risk and transparency. “We are seeking to develop overarching principles we can apply to any particular set of circumstances that will help us decide whether to use transparency as a regulatory tool”, Sants stated.
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