The Government have made clear that the banking industry must develop sustainable long-term remuneration policies to prevent excessive risk-taking, both in the UK and internationally.
The FSA has published a code of practice on remuneration, which it intends to add to the FSA handbook. The consultation on the code recently closed and the FSA is reviewing responses with a view to having the code in place for firms’ 2009 remuneration processes. In the Government’s recent paper Reforming Financial Markets the Chancellor announced that he has asked the FSA to provide an annual report on remuneration practices, including compliance with the FSA’s new code, emerging risks to financial stability, and any action that needs to be taken.
Institutional shareholders also need to be more actively engaged in monitoring the boards of the bank in which they have invested, including in respect of remuneration. In relation to the banks in which the Government have a stake, UKFI has been engaging with the banks to ensure that they offer incentives based on the Government’s principles on remuneration, including no rewards for failure, and therefore protect the interest of the taxpayer as a shareholder.