An update on the remuneration code of practice being developed by the
Financial Services Authority has been provided in a
letter written by chief executive
Hector Sants. In his
"Dear CEO" letter, published today, Mr Sants writes:
You are, I know, aware of our determination to align remuneration policies, procedures and practices to ensure they are consistent with and promote effective risk management. The Consultation Paper that we published in March set out our proposal to incorporate this fundamental requirement into a general rule with a set of evidential provisions that outline how banks and broker-dealers could meet the general rule ...
The consultation period for this paper has now closed, and we will shortly be putting our proposals to the FSA Board for adoption. Although our Board still needs to make a final determination, we envisage that the FSA may well adopt a rule along the lines originally proposed, together with updated supporting principles that take account of consultation responses and that this will be effective from 1 January 2010.
In particular, I would draw your attention to the fact that guaranteed bonuses which run for a period of more than one year may be inconsistent with effective risk management. Moreover, we are not proposing to extend grandfathering arrangements to obligations entered into after publication of our consultation paper on 18 March 2009. It is essential that the market should not revert to remuneration practices that would be incompatible with our intended outcomes if the rule and code become effective next year".
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