- Our Ref:
- B1/15C
B1/21C
B9/92C
19 March 2010
The Chief Executive
All Authorized Institutions
Dear Sir/Madam,
Supervisory Policy Manual (SPM)
CG-5 "Guideline on a Sound Remuneration System"
I am writing to inform you that, following consultation with the
two industry associations, the HKMA is issuing the above SPM module
as a guidance note today.
The main purpose of this module is to provide AIs with guidance
for the development and operation of their remuneration systems,
with a view to ensuring that such systems are consistent with and
promote effective risk management. The guidance contained in this
module reflects the Principles for Sound Compensation Practices and
the accompanying Implementation Standards issued by the Financial
Stability Board in 2009. It also supplements the SPM module on
Corporate Governance of Locally Incorporated Authorized
Institutions (CG-1), which provides that Boards of locally
incorporated AIs should ensure that their institutions'
remuneration policy is consistent with its ethical values,
objectives, strategies and control environment.
To promote effective risk management and ensure a level playing
field within the local banking sector, the SPM module "Guideline on
a Sound Remuneration System" will apply to all AIs including, in
the case of locally-incorporated AIs, their overseas branches and
subsidiaries subject to the HKMA's consolidated supervision. The
HKMA will take into account the potential risks that may arise from
an AI's remuneration system as part of its risk-based supervisory
process.
AIs should review their existing remuneration systems and take
prompt action to bring their remuneration systems into line with
this module by the end of this year. To this end, the Boards of all
AIs should promptly conduct, or arrange for the conduct of, a
review independent of management of their existing remuneration
systems1 (including policies,
structures, practices and outcomes) to assess the extent to which
they are consistent with the principles set out in this module. AIs
should submit to the HKMA the results of their review within the
next 4 months. The HKMA will shortly be distributing a template to
facilitate this self-assessment exercise. Where an AI encounters
any problems in meeting the timeframe for self assessment or
bringing its remuneration system into line with the module, it
should approach the HKMA to discuss the outstanding issues and
likely timeframe required for them to be resolved.
On-line access to the SPM module is available under the icon for
"Supervisory Policy Manual" on the HKMA's public (http://www.info.gov.hk/hkma)
and private (http://www.stet.finnet.hk/index.htm)
websites.
Should you have any questions relating to the module, please
feel free to contact Ms Rose Luk at 2878-1638 or Mr W L Cheng at
2878-1683.
Yours faithfully,
Karen Kemp
Executive Director (Banking Policy)
- Encl.
- CG-5 "Guideline on a Sound Remuneration System"
- c.c.
- The Chairman, The Hong Kong Association of Banks
The Chairman, The DTC Association
FSTB (Attn: Ms Natalie Li)
1In the case
of overseas-incorporated AIs, the remuneration system applicable to
officers and employees engaged in the conduct of their business and
operations in Hong Kong.
