Today, the Financial Stability Board (FSB) published its report on the Peer Review of the United Kingdomfootnote . The UK is the first FSB member jurisdiction to undergo a peer assessment of the effectiveness of remuneration reforms in the financial sector.
We welcome the findings of this report, which highlight that the UK approach is consistent with the FSB Principles and Implementation Standards for Sound Compensation Practices, and which notes the effectiveness of our domestic framework and the strong collaboration between the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
Over the last eighteen months, the UK Authorities (PRA, FCA) and HM Treasury have worked together to provide the FSB Peer Review team with comprehensive information on the UK’s regulatory and supervisory approach to remuneration. This has involved regular dialogue with the review team and a number of interviews. The UK authorities and HM Treasury would like to thank the Peer Review team for their efforts in undertaking this comprehensive review.
We are pleased that the report recognises the emphasis UK authorities place on the importance of remuneration for setting incentives that are consistent with effective risk management and prudent decision making, to support the long-term viability of firms. As the report notes, in combination with the UK Senior Managers and Certification Regime (SM&CR), the remuneration regime has helped firms to map responsibilities, which has resulted in more consistent and effective implementation of remuneration practices.
While implementation of the FSB Principles and Standards was reported to be well advanced, the review team made four targeted recommendations to further strengthen the UK’s remuneration framework, which the UK authorities welcome. These include:
- reviewing the interaction between the UK’s remuneration regimes and the SM&CR;
- improving the efficiency of data collection;
- considering other supervisory approaches for assessing the effectiveness of the regime;
- and providing additional guidance to the insurance sector.
The UK authorities will continue to work together to take these forward when delivering on our regulatory objectives. In all cases, the timings for taking the recommendations forward will be balanced against other regulatory priorities.
The Peer Review process and report preparation took place prior to UK implementation of the fifth EU Capital Requirements Directive (CRDV) which came into force on 29 December 2020. The report does not examine these changes in depth. The FCA also plan to consult on a new remuneration regime for investment firms shortly as part of the new Investment Firms Prudential Regime.
The FSB began a regular programme of peer reviews in 2010, focusing on the implementation and effectiveness of international financial standards. In addition to being a condition of FSB membership, peer reviews are an important institutional mechanism to promote complete and consistent implementation of agreed G20/FSB financial reforms.