Financial Supervisory Authority’s suggestion for delayed payment of bankers’ bonuses receives support

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The suggested introduction of a time-lock principle governing Finnish bankers’ bonuses has received support from the banks themselves, from interest groups, and from the authorities.
      All the detailed opinions received by the Financial Supervisory Authority (FIN-FSA) second the model, in which the payment of bonuses is postponed from the moment of their derivation.
     
As the regulatory overseer of the financial market, FIN-FSA wants to weed out the use of fallacious incentives from the practices of financial institutions.
      When bonuses are paid, for example, three years after the profit year, the result-based rewards paid on the strength of erroneous criteria are likely to be found out.
      The financial crisis has partly been blamed on the very use of incorrect incentives in this way. American bankers were urged to aim for growth at any cost, and as a result large mortgages were awarded to insolvent customers.
     
The time-lock principle is supported by the largest bank in the Nordic Countries, Nordea, the Helsinki Exchange (NASDAQ OMX Helsinki), the Federation of Finnish Financial Services (FK), the Ministry of Finance, and the Central Chamber of Commerce.
      In their short statements the Bank of Finland, the Ministry of Social Affairs and Health, the Confederation of Finnish Industries EK, and the Finnish Pension Alliance TELA refrained from taking an attitude with regard to the issue.
     
Some of the statements issued disagree with FIN-FSA in respect of the length of the waiting period.
      In the FIN-FSA model, the payment of the bulk of a considerable bonus should be postponed by a minimum of three years.
      In the view of the Helsinki Exchange and the Central Chamber of Commerce, the exact number of years should not be specified.
      The Federation of Finnish Financial Services (FK) representing banks and insurance companies, in turn, feels that for risk management reasons the payment of bonuses for one year’s work could be delayed but not the payment of bonuses for, say, three years' work.
      In addition, FK would leave investment service companies such as stockbrokers and asset managers outside the scope of the time-lock.
     
On the other hand, FIN-FSA’s suggestion to recover already paid bonuses is dismissed across the board.
      FIN-FSA proposes that paid bonuses could be recovered if it turned out that they were paid based on information that proved false.
      The financial field as well as the authorities feel that such a move would bring a slew of legal protection issues in its wake.
      So far FIN-FSA issues its bonus-related instructions as recommendations, but at the end of the year they will turn into regulations.


Previously in HS International Edition:
  Financial Supervisory Authority recommends new remuneration principles for financial sector (14.12.2009)

Links:
  Financial Supervisory Authority press release 18.11.2009

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