On 7 May 2018, the Financial Stability Board (FSB) issued a public consultation on Recommendations for consistent national reporting of data on the use of compensation tools to address misconduct risk.

The draft recommendations seek to assist national supervisory authorities from all financial sectors by enhancing their capacity to consider and monitor the effectiveness of compensation tools and other mechanisms in promoting good conduct and addressing misconduct risk in significant financial institutions, within scope of a jurisdiction’s laws and regulations. They build on existing international efforts and national supervisory work, and, in particular for the banking sector, take into consideration the Basel Committee’s Pillar 3 disclosures framework, which includes disclosures on compensation.

The proposed data set is designed to help firms and supervisors answer a number of important questions. These include whether governance and risk management processes surrounding compensation:

  • appropriately include conduct considerations in the design of their compensation and incentive systems, including the setting of individual goals, ex ante performance measurement mechanisms and ex post compensation adjustments;
  • support the effective use of compensation tools – in combination with other performance management tools such as training, promotion and disciplinary systems – to help promote good conduct or to remediate individual conduct that is not in line with the firm’s expectations, including holding individuals accountable for any misconduct that occurs;
  • promote wider risk management goals, including for conduct issues, consistent with the firm’s strategy and risk tolerance; and
  • support the effective identification of emerging misconduct risks and where appropriate, review use of incentive systems and compensation decisions in response to conduct incidents to ensure alignment of incentives, risk and reward.

The deadline for comments on the consultation is 6 July 2018.