The review will focus on the steps being taken or planned by FSB member jurisdictions to ensure effective application of the Principles and Standards, published in April 2009, as well as progress to date in implementation by significant financial institutions.
Compensation practices within large financial institutions are one factor among many that contributed to the financial crisis which began in 2007. High short-term profits led to generous bonus payments to employees without adequate regard to the longer-term risks they imposed on their firms. These perverse incentives amplified the excessive risk-taking that severely threatened the global financial system and left firms with fewer resources to absorb losses as risks materialised. The lack of attention to risk also contributed to the large, in some cases, extreme absolute level of compensation in the industry.
The peer review on compensation will focus on the steps being taken or planned by FSB member jurisdictions to ensure effective application of the Principles and Standards, as well as progress to date in implementation by significant financial institutions. A template to collect information from national authorities was distributed to FSB members in December 2009, and the responses will be analysed and discussed by the FSB. The initial review is to be completed by March 2010 and the report will be published.
As part of this review, FSB welcomes feedback from financial institutions and other stakeholders on practical experiences in implementing the FSB Principles and Standards (or the respective national rules) – including descriptions of how compensation arrangements within financial institutions have changed in practice (governance, pay structures, risk adjustments), areas where implementation is proving challenging, and issues of consistency in regulatory responses across sectors and jurisdictions.
The template is structured in two parts:
1. general questions on the overall approach and scope of application of the Principles and Standards in each member jurisdiction; and
2. a template on progress being made by firms and national authorities with respect to each element of the Principles and Standards, and planned next steps.
Deadline for comments is 1 February 2010
© Financial Stability Board
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