The FSA's new  draft code of remuneration code of practice has put good governance front and centre by insisting that remuneration is tied to effective risk management. The proposed policy is a follow-up to the letters written to the CEOs of FSA authorised companies in October 2008.

What is notable about the proposals is that the Governance Principle has gone from an also-ran fourth place straight to pole position. No doubt many will lament that such proposals were not a core part of the UK regulatory framework in the run-up to the banking crisis. However many will appreciate the emphasis on ensuring that the bonus culture is more closely aligned to sound business principles. Of particular interest will be that one or more members of the Remuneration Committee should have practical skills and experience of risk management. There is also acknowledgement of the long held view in governance circles that perverse incentives create perverse behaviours in that the FSA is also expecting remuneration statements to include an assessment of the impact of their policies on behaviour.

The FSA will consult on the code and further proposals for remuneration policy in March.