Gekko was wrong

Most who have seen the film Wall Street will remember the famous scene when Gordon Gekko, played by Michael Douglas, announced that "Greed is good".

Well, recent events may have much suggested otherwise and there is now public pressure to review the pay and bonus structure of senior management.

And now the FSA has got in on the act. On 13 October it published a Dear Chief Executive letter on remuneration policies. In this letter, it is stated that in many cases the remuneration structure of firms may have been inconsistent with sound risk management.

While the FSA said that it has no wish to become involved in setting remuneration levels - which it believes is a matter for boards - it does want to ensure that firms follow remuneration policies which are aligned with sound risk management systems and controls, and with the firm's stated risk appetite.

All firms are urged to consider carefully their remuneration policies, especially in light of recent market events. The FSA has warned firms that if their remuneration policies are not aligned with sound risk management, immediate action will be taken to require the policies to be changed. To assist firms in their assessment the FSA has set out in an annex to the Dear Chief Executive letter its current thinking on the criteria for good and bad remuneration policies.

According to the FSA, it has already had high level discussions with London-based firms about remuneration policies and further discussions are expected. In early 2009, the FSA will communicate to the market its findings regarding good practice and will also publish its general findings about remuneration structures in the London market, on a no-names basis.

If firms have not already done so recently then it may be sensible for them to review their risk management policies, conflicts policies and compliance with the provisions of the Senior Management Systems and Controls sourcebook.

Simon Lovegrove is a lawyer with the financial services group at Norton Rose LLP