Switzerland’s financial markets regulator Finma is introducing rules that aim to align bonuses with the long-term interests of banks and insurers, and curb incentives to take risk. They do not impose a cap on compensation.

The regulations will take effect Jan. 1 and apply to Switzerland’s seven biggest banks and five biggest insurers, Finma said Wednesday. They apply to all employees, not just those residing in Switzerland, though the rules leave open the possibility of making exceptions if they are well founded.

That flexibility may help the Swiss companies attract employees in competitive financial centers such as London and New York, should rules on compensation turn out to be less strict there than in Switzerland.

Attracting and keeping good bankers is an element of ensuring a company’s long-term success, and thus in line with the general framework of the new rules, said Finma spokesman Alain Bichsel. “We plan to handle such exceptions very restrictively,” he said.

Switzerland is among the first countries to act after the Group of 20 leading economies in September pledged to ensure member states come up with new bonus and pay principles.

Under the rules, bonuses must be treated as the employees’ stake in the success of the company, and therefore must have been earned by the company over the long term, Finma said. This enables banks or insurers to pay out bonuses even if they did not make a profit, provided the loss-making period is brief.

The regulator urged banks to pay only deferred forms of bonuses when business performance is negative, and said it welcomes clawback and malus provisions, which allow for the complete or partial loss of already granted bonuses if negative events occur.

Finma put particular emphasis on bonuses for top executives, saying those managers who have significant responsibility for risk or high total remuneration must have a major part of their bonus deferred, linking it more closely to risk.

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