FINMA, the Swiss financial regulator, has proposed to lay down tough rules on bankers' pay as part of a move to avoid potentially damaging risk-taking, coming in the wake of the massive credit losses sustained by UBS, the world's biggest wealth manager, and losses to other banks based in the country.
The proposal are designed to ensure that “remuneration systems do not provide incentives to take inappropriate risks that could threaten the stability of financial institutions", the regulator said in a statement. A consultation period runsl 14 August 2009.
Financial institutions will have to structure their variable remuneration packages (bonuses) on a "sustainable and long-term basis in line with economic profit while taking into account the costs related to all risks entered into. Furthermore, boards will have to discharge their duties more carefully. They are responsible for the remuneration policy of the entire company and will have to disclose the company’s remuneration policy in a remuneration report", the statement continued.
All financial institutions supervised by the regulator will be covered by the proposals.
FINMA said variable remuneration was the employees' stake in the success of a company, requiring that all variable remuneration paid out must have been earned by the company over the long term.
There are proposals to make pay structures more transparent: FINMA said they go beyond specific initiatives on an international level and the current requirements under Swiss law. While the current company and stock market disclosure legislation only requires disclosure of the remuneration received by senior management, FINMA is calling for summary disclosure of the remuneration structure for all employees.
FINMA plans to set out the definitive provisions in September 2009, becoming law on 1 January next year.