The Financial Stability Board (FSB) has published for consultation draft Supplementary Guidance to the FSB Principles and Standards on Sound Compensation Practices regarding the use of compensation tools to address misconduct.
The proposed guidance has been developed in collaboration with the standard-setting bodies and it supplements the FSB’s Principles and Standards on Sound Compensation Practices, which note that compensation should be adjusted for all types of risk. Once finalised, the guidance will provide firms and supervisors with a framework to consider how compensation practices and tools, such as in-year bonus adjustments, malus and clawback, can be used to reduce misconduct risk and address misconduct incidents.
The proposed guidance does not establish additional principles or standards beyond those already set out in the Principles and Standards. The draft supplementary guidance is in the form of recommendations on better practices at financial institutions considered significant for the purposes of the Principles and Standards. The guidance is structured in three parts:
- governance of compensation and misconduct risk;
- effective alignment of compensation with misconduct risk; and
- supervision of compensation and misconduct risk.
Once finalised, the guidance will provide firms and supervisors with a framework to consider how compensation practices and tools, such as in-year bonus adjustments, malus and clawback, can be used to reduce misconduct risk and address misconduct incidents.
The deadline for comments on the consultation is 30 August 2017.
View FSB releases consultation on the use of compensation tools to address misconduct, 20 June 2017