Governance remains a key issue across the EU, the US and Asia Pacific, as regulators strive to ensure banks’ boards are made up of people with the right skills and with appropriate levels of dedication to their bank.
Nevertheless, it seems unlikely that detailed international standards will be introduced outside of the EU.
This may be an advantage in that governance structures differ widely across countries and regions – and one approach may subsequently not work well in all countries.
Yet, equally, banks with subsidiaries in many countries may find themselves subject to increasingly onerous and inconsistent requirements.
Governance – a regional comparison
European banks have started to implement new governance structures in preparation for new rules such as the European Banking Authority’s guidelines and the Capital Requirements Directive 4, both of which are due for finalization in 2012 and implementation in 2014.
In the US, the Dodd-Frank Act requires many firms to now have a risk committee – and will likely lead to new compliance programs.
Regulators in China, Singapore and Malaysia meanwhile are also focusing on improved governance.
Regulators’ drive for a less dangerous alignment of the risks bankers take and how well they’re rewarded still seems some way off – with a recent Financial Standards Board report revealing that bonuses still account for the majority of total remuneration awarded to the highest-paid employees within US and UK banks.
However, across the US and the EU many banks have nonetheless significantly reduced the variable component of bankers’ pay and increased the fixed aspect of compensation in some areas of their business.
In the US, the Federal Reserve recently reviewed compensation at large and complex banking organizations, finding some limited improvement in certain compensation practices. And in the EU, meanwhile, there is talk of setting a maximum ratio for the variable component.
Both developments bring EU and US banks a little closer to the Asian model, where bonuses account for between 30 and 60 per cent of the total pay awarded to senior executives (with a lower percentage again in Japan).