Walker Review frequently asked questions (FAQs)
What is the Walker review?
The Walker Review of Corporate Governance of UK Banking Industry was announced on 9 February 2009, and is one of a range of actions taken by the Government to reform and strengthen financial institutions in the wake of the financial crisis. Sir David Walker was asked to conduct a review of the corporate governance of banks and other financial firms, to recommend how financial institutions can better equip themselves to respond to lessons learnt from the crisis.
What does the Review cover?
The review examines corporate governance in the UK banking industry and makes recommendations on:
- the effectiveness of risk management at board level, including the incentives in remuneration policy to manage risk effectively;
- the balance of skills, experience and independence required on the boards of UK banking institutions;
- the effectiveness of board practices and the performance of audit, risk, remuneration and nomination committees;
- the role of institutional shareholders in engaging effectively with companies and monitoring boards; and
- whether the UK approach is consistent with international practice and how national and international best practice can be promoted.
What will the Review achieve?
The Walker Review, along with other reforms, will strengthen the UK’s financial system and help to prevent future crises. Once in place, the changes recommended in the Review will strengthen bank boards and enable them to better challenge the executive management team, improving risk management and reducing the potential to encourage excessive risk-taking.
Specifically, remuneration committees will have to take responsibility for firm-wide pay policy, establish better pay structures with longer deferral periods, and control the risk that remuneration structures encourage excessive risk-taking. There will be greater disclosure of remuneration for ‘high end’ bank staff and clearer links between performance and pay. The Review will ensure more effective, timely engagement between investors and bank boards, and improved ability for institutional investors, individually and collaboratively, to hold bank boards accountable for their performance.
Boards will have greater assurance that they have the necessary oversight and control of risk management via more independent risk management functions. They will receive better quality information, and will be better able to scrutinise the information they receive.
Institutional investors – who are largely the ultimate owners of the banks – will be encouraged to devote more attention and resource to assessing a fund manager’s ability to engage effectively with the boards of companies they are investing in.
Has Walker gone further than in his interim report?
Yes, the Review pushes for further reform in several areas:
- disclosure of remuneration will be mandatory – instead of the suggested ‘comply or explain’ approach;
- the threshold for remuneration disclosure will be £1m, which will be lower in many cases than the initial proposal of using ‘median executive board’ as a threshold;
- pay bands will be set for disclosure;
- information on remuneration by business activity will be disclosed;
- all enhanced benefits, not just enhanced pension benefits, will be disclosed;
- there will be consultation on incorporating the Review’s pay deferral recommendations into the Financial Services Authority (FSA) remuneration code;
- there will be independent oversight of the Stewardship Code on shareholder engagement, by the Financial Reporting Council (FRC);
- independent monitoring of engagement disclosures by fund managers under the Stewardship Code is proposed.
How will the recommendations come into force?
The Government has already taken first steps to implement the Review’s remuneration disclosure recommendations, through the Financial Services Bill, which is currently going through Parliament. The Government will need to consult on, and take regulations under the power through Parliament. This process is expected to complete in late 2010. Other recommendations will be implemented quickly, working closely with other relevant bodies, including the FRC and the FSA.
How does the UK compare to other countries?
The UK has gone further and wider than any other country in pursuing these reforms, and we will continue to pursue all options to put an end to the practices that contributed to the financial crisis.
In agreements with the Government, UK and international banks have confirmed their commitment to the FSA Rule on remuneration, which comes into force on 1 January 2010 and which is in line with the G20 agreement, setting global standards for the implementation of the Financial Stability Board’s remuneration principles. This will mean that the UK will be the first country to deliver on the G20 principles on bonus controls for the 2009 performance year - no country has moved faster.
The UK Government continues to work internationally to secure consistent implementation of reforms via the Financial Stability Board standards.
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