The Financial Stability Board (FSB) issued today a peer review on progress in applying the Principles for Sound Compensation Practices and their Implementation Standards.
The FSB Principles and Standards were endorsed by the G20 Leaders at their summits in London in April 2009 and Pittsburgh in September 2009. In their Pittsburgh statement, the G20 Leaders tasked the FSB “to monitor the implementation of FSB standards and propose additional measures as required by March 2010.”
Significant progress has been made in incorporating the FSB Principles and Standards into domestic regulatory and supervisory frameworks. Compensation structures in the major financial firms have changed response. But full implementation is far from complete. Sustained efforts by firms and authorities remain necessary to effectively align compensation structures in major financial institutions with prudent risk-taking.
Mario Draghi, the Chairman of the FSB, said “We welcome the steps taken to put in place frameworks for regulatory or prudential oversight of compensation structures. But supervisors must make sure that the additional measures recommended in the review are put in place.”
Firms will need to maintain momentum towards reforming their compensation practices through 2010 and beyond.
A follow-up review on compensation should be undertaken in the second quarter of 2011. By that time, more information will be available on which to judge ongoing changes in the industry and the impact of national implementation measures.
Notes to editors
The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. It brings together national authorities responsible for financial stability in significant international financial centres, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.
The FSB is chaired by Mario Draghi, Governor of the Bank of Italy. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.
The FSB Standing Committee on Standards Implementation, which is responsible for managing the peer review process, is chaired by Tiff Macklem, G7 Deputy and Associate Deputy Minister of Finance of Canada.
The thematic review on compensation was prepared by a team of experts drawn from the FSB membership and led by Klaas Knot, Deputy Treasurer General and Director of Financial Markets at the Ministry of Finance of the Netherlands.
The review based its findings and recommendations on information collected from FSB members as well as private sector input, including a report commissioned from external consultants on industry progress and implementation challenges, and direct feedback from stakeholders invited via the FSB website.