EBA report highlights shortcomings in the application of its Guidelines on the remuneration of sales staff

The European Banking Authority (EBA) published today a Report on the application of its Guidelines on the remuneration of sales staff in force since 2016. The EBA’s assessment revealed that financial institutions focus more on prudential requirements and commercial interests than on meeting the interests of consumers. However, the EBA also identified good practices that are considered to be compliant with the Guidelines.

The EBA assessed how a sample of 70 financial institutions from 12 EU Member States are applying the Guidelines on the remuneration of sales staff. The analysis focused on institutions’ internal arrangements for designing, approving, and monitoring the remuneration policy and practices for sales staff, in particular the practices for awarding variable remuneration to sales staff.

The findings reveal that the financial institutions in the sample focus more on prudential requirements and commercial interests than on consumer protection requirements. The assessment also shows that, in terms of governance structures, the design, approval and monitoring of the remuneration policies and practices are often handled by the same function, thereby increasing the risk of an inaction bias when reviewing the remuneration policies and practices.

However, the EBA also identified 17 distinct good practices which are considered as compliant with the Guidelines. For example, it is a good practice for financial institutions:

• to involve their human resources, compliance and risk management functions in the design of the policies;
• to involve shareholders before granting variable remuneration in excess of 100% of fixed remuneration;
• to apply a mix of quantitative and qualitative criteria when determining the variable remuneration of sales staff;
• not to consider sales performance as the determining criterion for the promotion of staff;
• to implement measures that explicitly disincentivise sales staff from acting in a way that gives rise to consumer detriment;
• to include in the key performance indicators that determine variable remuneration some measurements of customer satisfaction or, conversely, customer detriment;
• to establish a ‘gatekeeper provision’, i.e. reduce or forfeit the variable remuneration of sales staff when they acted to the consumer’s detriment;
• and to ensure that payout curves for VR do not set incentives to maximize sales at a specific point.

Legal basis

This Report has been drafted in accordance with Articles 1(5) and 9(2) of the EBA founding Regulation. Article 1(5) requires the EBA to “contribute to improving the functioning of the internal market, including, in particular, a sound, effective and consistent level of regulation and supervision. […], preventing regulatory arbitrage and promoting equal conditions of competition, […] enhancing customer and consumer protection, as well as supervisory convergence across the internal market”.