A look at evolving regulatory reforms around remuneration practices, and the business and technology implications for global financial services institutions
Regulators, academics, and executives across the world have been devoting increased time and resources to analyzing the events and triggers that led to the global financial crisis. Globally, regulators have been designing new guidelines and proposing controls that will help in preventing such crises in the future. One key area of focus has been on the remuneration practices of financial services institutions. Even with the turmoil in global financial markets at its peak, executives at big financial services institutions continued to receive hefty bonuses. This led to public outrage against many of the existing remuneration practices of financial services institutions. Regulators also questioned the way in which compensation packages for executives were designed, as huge payouts to executives were made even when the firm suffered overall losses at a group level. In 2009, the Financial Stability Board issued a set of guidelines to better align remuneration practices with a firm’s long-term profitability goals. These guidelines aim to improve the governance and supervision of executive remuneration and increase the trust of all stakeholders.
Although the new reforms present multiple challenges for financial services institutions, they also provide an opportunity for financial services institutions to develop business-led and technology-enabled solutions for compliance with the new regulations. Key investment areas include ensuring efficient storage and retrieval of compensation-related data, enhancing the report generation process, and creating systems that help ensure compliance with the new regulations. Regulatory reforms around governance and supervision of remuneration practices will continue to evolve, but financial services institutions have an opportunity to design strategies and solutions now to deal with the future implications.