FSB Issues Supplemental Guidance on Compensation, Misconduct Risk

The Basel, Switzerland-based Financial Stability Board today released supplemental guidance on the use of compensation tools to address misconduct risk — guidance that it intends for national banking regulators to apply to large, globally active banks. The guidance supplements standards issued by the FSB in 2009 in response to the global financial crisis and based on the premise that compensation should be adjusted for all types of risk, including hard-to-measure risks.

The guidance, which the FSB said would not create new standards, specifically encompasses governance of compensation and misconduct risk, including board and management roles; effective alignment of compensation with misconduct risk, including performance bonus and “clawback” policies; and supervision of compensation and misconduct risk.