PATRICK Neary, chief executive of the Financial Regulator, has warned the banking sector that they need to be very clear about the incentives paid to executives and why.
Addressing the Finance Dublin Conference yesterday on the theme of developing a positive regulatory environment for successful financial centres, Mr Neary said in the interests of their own reputations it was “imperative that the boards and management... have robust policies, systems and controls in place for their main areas of operation and their main risks”.
They have a duty to question policies and to interrogate sources of profit to ensure that risk is well understood and managed.
In that context he said: “We believe that there is an increasing need to ensure that the incentives for key business executives are not in conflict with prudent business developments.”
While it was a matter for boards and shareholders to decide appropriate remuneration levels Mr Neary said “it may be the case that greater and more transparent emphasis be placed on the link between incentives and prudent and sustainable business strategies”.
“The key challenge for all institutions is to develop a culture within their organisations that fosters compliance and high ethical standards. Those who genuinely promote these standards will ultimately gain from them,” he said.
In that context, referring to the unease caused by Contracts for Difference, known as CFDs in the markets, Mr Neary said this was an area where change was needed.
The holding of CFDs and the need for the market to know when a person has a significant holding has emerged as a real issue over the past 12 months.
This was an international issue and the subject of consultations with the FSA in London, he said.
“We would like to see a similar approach in both jurisdictions, so that there is no possibility for regulatory arbitrage between the two,” he said.
While the Stock Exchange has done a conscientious job in that regard trading has become more complex and ensuring full compliance with market rules and of proper disclosure as to where ownership “is the challenge that we as the new competent authority for market abuse face”, he said.
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