HKMA issues its Guideline on a Sound Remuneration System - Hong Kong - 19 March 2010

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Source: HKSAR
Government

Hong Kong (HKSAR) - The following is issued on behalf of the Hong Kong
Monetary Authority: The Hong Kong Monetary Authority (HKMA) has issued
its "Guideline on a Sound Remuneration System" (Guideline) today (March
19), 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, authorised 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