FCA makes it crystal clear that 2016/2017 Remuneration must be directly linked to Effective Risk Management

The FCA will crack down hard on firms which incentivise behaviours that are not in the best interests of consumers, market integrity or fair competition and will look closely at Material Risk Takers, bonus pools and individual performance assessments.

The FCA’s letter to all UK banks, building societies and investment firms (with relevant total assets exceeding £50 billion) highlights that remuneration policies and practices must promote the link between risk and individual reward, discourage excessive risk-taking and short-termism, and encourage sound and effective risk-management.  Where conduct falls below expectations, firms should make appropriate adjustments to individual senior managers’ variable remuneration to reflect their accountability and to reinforce appropriate standards of conduct throughout their firm.

Firms should ensure that both their contractual employment documentation and their Equity Plans and Long-Term Incentive Plan Rules contain appropriate wording regarding forfeiture, clawback and malus to deal with adjustments to remuneration and equity incentives in such circumstances.

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