EBA extends deadline on remuneration guidelines

EBA extends deadline on remuneration guidelines

On 28 September 2016, the European Banking Authority (EBA) published its final Guidelines on remuneration policies and practices related to employees involved in the sale of retail banking products and services.

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The EBA highlighted the link between poor remuneration policies and practices, and significant cases of misconduct and mis-selling by staff in financial institutions in recent years. The need for the development of requirements to address this issue was identified, with the aim of improving the relationship between the remuneration of sales staff and the fair treatment of consumers.

The Guidelines are amended in places to reflect feedback to the draft. They include separate requirements related to the design, approval and the monitoring of remuneration policies and practices. Also, they clarify the type of information that will be required to be recorded by institutions in order to ensure compliance with the Guidelines.

The key aspects of the final Guidelines are as follows:

Design

  • Institutions should ensure that the level of variable remuneration received by the individual is not solely linked to the quantitative sales of a product.
  • Institutions should not incentivize the selling of more profitable products for the institution or individual, to the detriment of the consumer.
  • The ratio between fixed and variable remuneration should be balanced and take into account the rights of the consumers. Institutions should allow for the possibility of no pay-out of variable remuneration plans where appropriate.

Documentation

  • The institution should document all remuneration policies, keeping them for audit purposes for at least five years and making those available to competent authorities on request.
  • The remuneration policies and practices should also be easily accessible to all relevant individuals of the employing company and before being allowed to offer banking products or services to consumers, the relevant persons should be clearly informed in a simple and transparent manner of the remuneration policies and practices that are applicable to them.

Approval

  • The management body retains ultimate responsibility for the approval of the design for all remuneration policies and practices.
  • Any need to obtain advice on the remuneration policies and practices is limited to institutions that have established a remuneration committee.

Monitoring

  • Institutions should review their remuneration polices at least annually and should ensure that the essential controls are in place to identify and address non-compliance with the Guidelines.

The EBA has decided to postpone the application date of these Guidelines from 3 January 2017 to 13 January 2018. Therefore, firms do not need to change their remuneration policies and practices for the coming year, although they should consider the Guidelines when evaluating their remuneration policies and practices for 2017, to ensure a smooth transition when they come into force.

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