In July 2009, the Basel Committee on Banking Supervision (“BCBS”) published supplemental Pillar 2 (supervisory review process) guidance to address perceived weaknesses that were revealed in some banks’ risk management processes during the recent financial turmoil. The guidance included a set of “Principles for Sound Compensation Practices,” which had been published in April 2009 by the Financial Stability Board (“FSB”). One of these Principles was that “Firms must disclose clear, comprehensive and timely information about their compensation practices.” However, in March 2010, the FSB noted in its “Peer Review Report on Compensation” significant variances in compensation-related disclosure across different jurisdictions. This has led it to recommend that detailed disclosure requirements be incorporated into Pillar 3 (of Basel II) in order to be more prescriptive and engender greater uniformity across the different jurisdictions.
In July 2011, the BCBS published its proposed Pillar 3 disclosure requirements (the “Requirements”) for remuneration. Their stated intention is to “allow market participants to assess the quality of the compensation practices and the quality of support for a firm’s strategy and risk posture.” They are also intended to take account of the FSB’s Implementation Standard 15 on disclosure and the BCBS’s report on the “Range of Methodologies for Risk and Performance Alignment of Remuneration,” published in May 2011.
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