The question of how far individual compensation was to blame for the financial crisis has been addressed by the Financial Services Authority (FSA) in the Turner review and its accompanying discussion paper. We believe it should be seen as a contributory factor but certainly not as the principal cause. The failures in the global regulatory policy framework and poor judgments by all – including regulators, central banks, governments and consumers – were, in our view, far more significant.

However, as our consultation exercise has demonstrated, there is now a consensus among regulators and industry practitioners that inappropriate remuneration practices contributed to significant losses at major financial institutions and therefore to the severity of the current market turmoil. Market discipline was not effective in limiting the adverse effect of such practices on risk management, particularly in large, systemically important institutions.