The Financial Stability Board (FSB) says that regulators and financial firms need to do more to fully implement its principles for sound compensation practices.
On Monday, the FSB published its second progress report on the implementation of its principles concerning compensation, which finds that, while good progress has been made, “more work needs to be done by national authorities and firms” to ensure that implementation of the principles is leading to more prudent risk-taking behaviour.
“This will take time, and there is still some way to go before the improvements in compensation practices can be deemed effective and sustainable,” it concludes.
The FSB notes that almost all of its jurisdictions have implemented the principles in national regulation or supervisory guidance; and their focus is now on effective supervision and oversight of implementation by firms themselves.
One area where the FSB says more work is needed is on the identification criteria for material risk-takers; noting that there is some variation in this among countries.
It also reports that, while the disclosure of compensation practices has improved, it is still “generally difficult for policymakers and the public to reliably access easy to understand and consistent data on compensation structures for significant firms across jurisdictions.”
Firms continue to express concerns about ensuring a level playing field, the FSB notes; however, it says regulators “have yet to see any real evidence” that the implementation of these measures “has impeded or diminished the ability of supervised institutions to recruit and retain talent.”