  11  In addition, the Prudential Regulation Authority has made clear that it expects firms to use a balance of both financial and non-financial factors (such as conduct metrics) when determining pay rewards and that financial metrics should be appropriately risk adjusted. Internationally, the Financial Stability Board is taking action to improve the alignment between remuneration and conduct risk  12  and (during 2017) will consult on:    Supplementary guidance on the use of compensation tools to address misconduct, and    Recommendations for consistent national reporting and collection of data on the use of compensation tools. 10  Documentation relating to remunerations rules can be found at: http://www.bankofengland.co.uk/pra/Pages/supervision/activities/remuneration.aspx 11 See the Bank of England Quarterly Bulletin 2015 Q4, Volume 55 No. 4, page 328, Chart 6. 12 See ‘Implementing the FSB Principles for Sound Compensation Practices and their Implementation Standards: Fourth Progress Report’ at http://www.fsb.org/wp-content/uploads/FSB-Fourth-progress-report-on-compensation-practices.pdf 5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  Taken together, these reforms will further strengthen the alignment between risk and reward, and ensure greater accountability for risk management failings over a longer timeframe. Complementing “Hard Law” with “Soft Law”  The authorities can implement rules and regulations, but they can also play a broader role by promoting good behaviour. The Fixed Income, Currency and Commodity (FICC) markets are covered by a patchwork of poorly understood codes of conduct and market practices.

To address this, the Fair and Effective Markets 13  Review recommended the creation of a FICC Markets Standards Board (FMSB) , with a mandate to:   To improve the quality, clarity and market-wide understanding of wholesale FICC trading practices;    Produce guidelines, standards and other materials to promote good conduct; and,    Undertake horizon scanning by periodically reviewing wholesale FICC markets for emerging risks. The FMSB has already made significant progress in engaging a wide range of market participants, which is a testament to the leadership of Elizabeth Corley as interim Chair and Mark Yallop who took over as Chairman in July.   Over 50 firms have signed up including 17 G-SIBs, some of the largest asset managers in the world, and many corporates and treasurers who are major users of FICC markets.   The FMSB has published draft guidance on ‘Reference Price Transactions in Fixed Income Rates Markets’ and ‘Binary Options in Commodities Markets’ that members must adhere to on a comply or explain basis; and    Other jurisdictions are starting to take note – the Australian Financial Markets Associations’ members have agreed to implement the FMSB’s standards and the South African Reserve Bank has been in touch about setting up its own FMSB equivalent. Many global banks are telling us they intend to apply these standards to all their operations. The internationalization of these market standards is critical for creating a level playing field and preventing “ethical drift” across different jurisdictions.