Independent assessment of the credit institution’s compensation system for compliance with Bank of Russia Instruction No. 154-I
In accordance with Federal Law No. 395-I “On Banks and Banking Activities” dated 2 December 1990, a credit institution is required to establish a remuneration system both in general and specifically for:
- individuals listed in Article 60 of Federal Law No. 86-FZ “On the Central Bank of the Russian Federation (Bank of Russia)” dated 10 July 2002, including the sole executive body and its deputy, members of the collegial executive body, the chief accountant and their deputy, etc.;
- Head of the risk management department;
- Head of the internal audit department;
- Head of the internal control department of the credit institution;
- other heads (employees) responsible for decisions on the credit institution’s transactions and other operations.
Regulatory requirements for the remuneration system are set out in Bank of Russia Instruction No. 154-I.
The regulator conducts a quarterly assessment of a bank’s financial standing and determines its qualification group, which impacts restrictions on certain operations. This evaluation includes assessing the management of risks related to staff financial incentives. Compliance is deemed satisfactory if the remuneration system aligns with the nature and scale of operations, business outcomes, and the level and balance of risks taken.
Our independent assessment will provide the bank’s board of directors with expert insights to implement timely corrective measures that will help boost compliance with regulatory requirements and minimise the risk of downgrading the qualification group.
- Review and analysis of the bank’s compensation system documentation.
- Evaluation of practical implementation of Instruction No. 154-I through documents and employee interviews.
- Documentation of observations and development of recommendations to address deficiencies and improve the remuneration system.
- Preparation of an assessment report.
- Discussion of the assessment report with the bank.
- Report containing:
- an independent evaluation of the remuneration system’s compliance with Instruction No. 154-I;
- proposals and recommendations to enhance the system and boost its compliance with Bank of Russia requirements, with the help of best market practices.
- Minimised risk of downgrading the Bank of Russia’s assessment of the personnel financial incentive risk management indicator (PU7) under Ordinance No. 4336-U “On Assessing Banks’ Economic Situation” dated 3 April 2017.
- Compliance of the remuneration system.
- Timely identification of regulatory (compliance) risk factors.
- Reduction of operational risks (errors in personnel management processes).
- Integration of best market practices into the remuneration system.
