FSA publishes new draft code of practice for FSA regulated firms

Updated March 2009

The Financial Services Authority (FSA) has published a draft code of practice on remuneration policies which is relevant to all FSA regulated firms. The FSA is keen to emphasise that it is not concerned with the levels or quantum of remuneration (which it emphasises are matters for firms' Boards). Whilst the FSA seems mindful it should not be an economic regulator, it is clearly the case that it is facing political and market pressure to respond on quantum of renumeration and this will inevitably factor in its assessments of firms' compliance with the Code. The FSA's supervisory focus will be in ensuring that firms' remuneration policies are in line with sound risk management and staff are not incentivised to take excessive risk, for example by way of significant bonus structures. 

Firms should expect the FSA to task their Remuneration Committee, or those charged with the overall responsibility for its firm's remuneration policies, to provide it with evidence of how well its policies measure against the principles in this Code, together with a gap analysis of any areas for improvement that have been identified as falling short of the Code.

The FSA will also be asking firms to use the principles set out in the Code in assessing their exposure to risks arising from remuneration policies as part of the ICAAP process.

If firms have not already done so, they are advised to ensure that they read the Code of Practice and take into account in any decision making by their Remuneration Committee. Firms should also be mindful of reviewing contracts of employment entered into with their employees before taking any action which might affect employees' remuneration.

The FSA will consult on the draft code and further proposals for remuneration in March.