The regulator’s chief executive Hector Sants said in a speech at the Investment Management Association annual dinner last week that remuneration structures should ensure that employees and shareholders share the financial risk.
He said: “From the regulatory point of view, it is not our role to dictate the quantum of individual remuneration, that is for the market, but we do need to consider the implication of remuneration structures when judging the overall risk of individual institutions. We will do this with increased intensity.”
Sants also urged senior management in the banking sector to commit to improving their risk management.
He said: “In many cases, management of both credit and liquidity risk has been inadequate and recent events are evidence of this.
“It is now up to us, and by that I mean the FSA and senior management in the industry, to understand the steps that need to be taken and to take action.
“As I have said before, a good test for non-executives is to ensure that their board understands the circumstances under which their firms will fail and are comfortable with that risk.”
Sants said the FSA will be focusing its efforts on more intensive supervision, increased transparency and improved consumer protection.
He said that all major companies will need more robust contingency plans and sustainable funding and liquidity plans.
He added: “From the consumer perspective, the FSA is keenly aware of the need to restore consumer confidence. We should have a system which would allow banks to fail, with the cost falling on shareholders and management, but not retail savers.”