The Hong Kong Monetary Authority (HKMA) has issued its "Guideline on a Sound Remuneration System" (Guideline) today (Friday), taking into account the results of the industry consultation conducted in the final quarter of last year and the latest international developments on this subject.
The Guideline reflects the Principles for Sound Compensation Practices and the Implementation Standards issued by the Financial Stability Board (FSB) to ensure that compensation practices in the financial industry are consistent with, and promote, effective risk management. The Guideline focuses on the governance and control arrangements for, and operation of, authorized institutions' (AIs) remuneration systems in the context of the incentives for risk-taking they may create. Key areas covered by the Guideline include the establishment and role of remuneration committees; the balance of the constituent elements in a remuneration package; the measurement of employees' performance and the alignment of remuneration payouts to the time horizon of risks. The Guideline also aims to strengthen market discipline through timely disclosure by AIs of information in relation to their remuneration systems.
To promote prudent risk management and ensure a level playing field within the local banking sector, the Guideline will apply to all AIs. Following the issuance of the Guideline, AIs' Boards should promptly arrange for a review of their institutions' remuneration systems and take prompt action to bring them into line with the risk management principles set out in the Guideline by the end of this year.
"The issuance of the Guideline reflects the HKMA's recognition of the incentive effects that remuneration systems may create and the associated implications for banks' risk management. In following the work on remuneration issues undertaken by the FSB, with endorsement of the G20, it is in line with recent supervisory responses in other international financial centres. We are pleased to note that the local banking sector is supportive of the objectives of the Guideline in ensuring effective governance of remuneration systems and alignment of remuneration with prudent risk taking. In finalising the Guideline, account has been taken of the results of the industry consultation within the framework of the principles and standards issued by the FSB," an HKMA spokesman said.
For further enquiries, please contact:
Peggy Lo, Manager (Communications), at 2878 1687 or
Yokee Wong, Manager (Communications), at 2878 1213
Hong Kong Monetary Authority
19 March 2010