FSA confirms introduction of remuneration code of practice: Banks given new rules on bonuses
Bankers' pay deals are to be linked more closely with the long-term profitability of banks under new rules from the FSA who say that bonuses should not be guaranteed for more than a year, and that senior employees should have their bonuses spread over three years.
The new code, announced by the FSA on 12 August 2009, will require large banks, building societies and broker dealers in the UK to establish, implement and maintain remuneration policies consistent with effective risk management.
The new code is designed to achieve two objectives:
- First, that boards focus more closely on ensuring that the total amount distributed by a firm is consistent with good risk management and sustainability; and
- Secondly that individual compensation practices provide the right incentives.
Eight principles have also been added to the FSA's handbook to ensure firms understand how the FSA will assess compliance.
The code makes clear that it is not expected that firms will enter into contracts with individuals which provide guaranteed bonuses for more than one year. It is also expected that for senior employees two-thirds of bonuses will be spread over three years.
Firms are expected to provide the FSA with a remuneration policy statement by the end of October. This will have to be signed off by remuneration committees and will enable the FSA to check compliance with the code. Non-compliant firms could face enforcement action or ultimately, be forced to hold additional capital should they pursue risky processes.
Source: www.fsa.gov.uk/pages/Library/Communication/PR/2009/108.shtml
The policy statement: 'Reforming Remuneration Practices in Financial Services' can be downloaded from: www.fsa.gov.uk/pubs/policy/ps09_15.pdf
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