The following Financial Services guidance note provides comprehensive and up to date legal information covering:
The UK is due to leave the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For further guidance on the impact of Brexit on the CRR and prudential regulation, see Practice Note: Preparing for Brexit: CRR and prudential regulation—quick guide.
Following the financial crisis, the Financial Stability Board (FSB) and a number of national regulators conducted reviews into the governance and structure of remuneration arrangements within the financial services sector. The main conclusions drawn from these reviews were that:
firms (and regulators) had failed to appreciate the extent to which remuneration policies and practices could encourage excessive risk taking
the structure of remuneration specifically could encourage excessive risk taking by focusing on cash-based, short-term incentives
bonus pool calculations did not sufficiently take account of firms’ capital and liquidity costs and the risks they faced
performance management systems often focused too heavily on financial performance and didn’t take into account multi-year performance
The FSB formalised the conclusions of its review into a set of FSB Principles for Sound Compensation Practices published on 25 September 2009. National regulators then began to draw up plans for regulating remuneration; in the US a set of high level guidance was published in late 2009 and in the UK, the FCA’s predecessor the Financial Services Authority (FSA)
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