Financial Stability Board To Develop Toolkit For Mitigating Misconduct
The Financial Stability Board (FSB) has published a report that takes stock of efforts to strengthen the governance frameworks to mitigate misconduct risks. The report forms part of the FSB's work plan to reduce misconduct risk in the financial sector, following a series of high-profile misconduct cases that came to light in the aftermath of the financial crisis. The FSB identified three areas for further investigation and aims to prepare a toolkit for supervisors and financial undertakings on these three areas.
The FSB's work plan consists of three elements:
examining whether reforms to incentives, for instance, to governance and compensation structures, have a sufficient effect on reducing misconduct improving global standards of conduct in the fixed income, commodities and currency markets reforming major benchmarks. The FSB is in the process of assessing these areas and will, where appropriate, propose new measures.
The FSB report has identified the following areas for further investigation:
the "rolling bad apples" problem: this arises when employees are dismissed due to misconduct at one firm (or leave under suspicion of misconduct) and then are employed by another firm, where they repeat their misconduct. The FSB sees this as a collective problem of the financial sector arising from a clash between the wish to conduct strong due diligence on prospective employees, and the fear of disclosing information about former employees because of concerns over privacy and litigation risks...
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