The HKMA consults on its draft Guideline on a Sound Remuneration System

The Hong Kong Monetary Authority (HKMA) is today (Thursday) consulting the Hong Kong Association of Banks and the Deposit-taking Companies Association on its draft "Guideline on a Sound Remuneration System".

The Guideline aims to ensure that authorized institutions (AIs) have in place sound remuneration systems that are consistent with, and promote, effective risk management. Remuneration systems which create incentives for inappropriate or excessive risk-taking have the potential to threaten the safety and soundness of individual institutions and thereby ultimately the stability of the banking system as a whole.

Developed on the basis of the Principles for Sound Compensation Practices and the Implementation Standards issued by the Financial Stability Board, the Guideline sets out principles for a sound remuneration system, covering governance, remuneration structure, performance measurement, alignment of remuneration payouts to the time horizon of risk, and adequate disclosure. The Guideline is expected to be issued as a module of the HKMA's Supervisory Policy Manual by the end of this year.

The Guideline, when issued, will apply to all AIs, given its relevance to AIs' risk management and internal control systems generally and the need to ensure a level playing field within the local banking sector. The HKMA will expect AIs to take prompt action to implement the Guideline once issued, with a view to achieving full compliance within 2010.

"The focus of the HKMA's draft Guideline is the provision of guidance on the governance and control arrangements for, and operation of, AIs' remuneration systems. The Guideline is not intended to prescribe particular levels of, or limits on, individual remuneration," an HKMA spokesperson said.

"Authorized institutions will be expected to conduct a review of their remuneration systems once the Guideline is issued and to take prompt action, where needed, to implement the principles it contains," the spokesperson added.

The consultation will close on 30 November 2009.

For further enquiries, please contact:
Peggy Lo, Manager (Communications), at 2878 1687 or
Hing-fung Wong, Manager (Communications), at 2878 1802

Hong Kong Monetary Authority
29 October 2009