The Monetary Authority today consulted the Association of Banks and the Deposit-taking Companies Association on its draft Guideline on a Sound Remuneration System. The consultation will close November 30.

The guideline will ensure authorised institutions have in place sound remuneration systems consistent with, and promoting, effective risk management.

The authority said today remuneration systems which create incentives for inappropriate or excessive risk-taking can threaten the safety of institutions and banking system stability.

The guideline lists principles for a sound remuneration system, covering governance, remuneration structure, performance measurement, alignment of remuneration payouts to the time horizon of risk, and adequate disclosure. It will be issued as a module of the authority's supervisory policy manual by the end of this year.

The guideline will apply to all authorised institutions which are expected to take prompt action to implement it, with a view to achieving full compliance next year.

The authority said the guideline will guide the governance and control arrangements for, as well as the operation of, the remuneration systems of authorised institutions. It is not intended to prescribe particular levels of, or limits on, individual remuneration.