Polish Bank Association

General comments
General impression
The content of Guidelines gives an impression that banks are acting against customers and the profit generated by credit institutions is possible only when the customer is misled.
In our opinion the basic principle of Guidelines is to support the mechanisms that would balance the interests of customer, sales person and credit institution, because all of them are involved in the process of buying and selling. The draft Guidelines give the customers a privileged position while the interest of sales persons and bank are limited to minimum.
The mechanisms proposed will discourage the sales persons from making an effort to create and develop relations with customers based on mutual understanding and trust. Proper and honest business relations with customer are formed only when sales persons are invited to develop trust and mutual understanding of expectations and needs on both sides. This is possible when both the customer and sales person participate in the benefits of the product or service offered, and the bank is an institution of trust making sure and checking that this relation is proper and not against the interest of any party involved, through using and developing control tools allowing or forbidding the realization of particular transactions.
The banks may limit the risk of mis-selling products through development of advisory competences of employees and through transparent and multi-product offer.
The motivation systems should be based on sale of various products to customers and seeking their satisfaction. Such a solution is good for both parties. The limitation of activities that are detrimental and risky for customers should not be based on creating artificial restrictions on motivation systems, which through excessive control and limitation discourage the sales persons from building relations with customers. The best solution is to define transparent systems of transactions verification, which would minimize improper practices used by sales persons.
The variable remuneration regulations in banks are based on rewarding safe sale, and not any sale. To assure this banks have various mechanisms and tools to verify and minimize risk, including short- and long-term perspectives. Also the motivation systems have provisions to identify and control improper activities of the sales persons.
In Poland the variable remuneration of sale persons is approx. 30% of the fixed remuneration (Hay Group remuneration report for Polish banking sector). If the relation between the fixed and variable remuneration is changed as the draft Guidelines suggest, this will highly increase the permanent costs of the bank and will negatively influence the motivation systems.

Influence of variable remuneration restrictions on motivation
It is worth to consider how limitation of amounts of variable remuneration influences the motivation of sales persons.
Other regulations
Many issues mentioned in the draft Guidelines are already present in external and internal regulations in European and Polish banking sector, e.g. in MiFID, Banking Ethics Code (Kodeks Etyki Bankowej, internal regulation of Polish banking sector), Principles of Corporate Governance for institutions supervised by Polish Financial Supervisory Authority, Recommendations S and T issued by Polish Financial Supervisory Authority, customer service standards, bank labour regulations, job descriptions, etc. These regulations focus mainly on products and services subject to the risk of mismatching, so there is no need to multiply the same or similar requirements in further/new documents.
Introduction of draft Guidelines may lead to over-regulation of the sector in Poland. The regulations presently binding for Polish banks concentrate on products and services generating higher risk of mismatching, e.g. mortgage loans, retail loans or investment products, while the draft Guidelines cover all the products and services regardless of this risk.
A good example of proper relations already existing between the sales person and the customer, where the business relations are mainly long-term, is the cooperative sector, which due to over-regulation may get in trouble. Therefore we suggest to take into account the principle of proportionality.

Only banks with one product accept these Guidelines because they do not influence their policy..

Detailed comments
Re. 1.1.
The wording of this items is too general and may lead to many various interpretations. E.g. Does it mean that the bank may decide by itself how to measure that the sales person acts to the detriment of the customer?
Also, we would like to note here that banks are “for profit institutions”, and are obliged to realize business strategies and targets.
Re. 1.5.
Adding the quality aspect to the quantity aspect of remuneration systems for sales is a very good idea. Most Polish banks use a mix of these two, but mentioning this in the Guidelines adds value to this issue. We agree that this item will support the rights and interests of the customer.
Re. 1.6.b
This item forbids to remunerate differently for sale of different products or categories of products, because this could lead to potential detriment of customers.
First, higher promotion of a specific product does not have to be detrimental to the customer. Especially when the sale process contains verification of matching of the offer to the needs of the customer. Therefore the Guideline should rather state that such activity is allowed as long as it is not harmful or detrimental for the customer.
Secondly, this statement overlooks the basic characteristics of products. E.g. simple bank account does not require preparing a sophisticated offer, or very special competences and work related to its service. On the other hand, there are mortgage loans, credit card functionalities (like additional limits with installments) or packages of products (like account, loans, credit cards and insurance), which require more attention and higher engagement of the sales person.
In fact this provision impairs the sense of the bank’s margin system.
Example 1:
A bank pays a certain amount of variable remuneration for a number of products sold. Out of this sum 5% is included in the books in the year of the sale, while 95% is spread for the length of the products lives. Such a provision is in agreement with the International Accounting Standards. With introduction of this item of the Guidelines, the bank will have a high increase of current costs, which will have to be mitigated, among others, through raising the costs of products for the customer.
Example 2:
A large bank has its variable remuneration system based on a special pricing scheme. The system considers interest, margin and individual income related to opening, servicing and closing the product. It also evaluates the complexity of sale, cost of servicing and maintaining the product, level of risk for the bank, competences of sales persons etc. The bank does not suggest the sales person which products should be sold first or more often. It is up to the sales person how and which products will be sold to customers. Besides the bank has many control mechanisms which are used to review and optimize the remuneration systems. The bank has a system of analyses and reviews of improper situations and behaviour of sales persons in relation with their sales plans. The bank analyses customer claims, disputes with customers settled at conciliatory court, inspection and audit reports, as well as customer satisfaction reports. There are also quality control activities like “mystery shopper” or “welcome calls” to check if the customer is pleased with a particular product.
In 3rd quarter of 2015 the bank had a review of sale activities. The report stated that 1.48% of sale persons sold only 1 product to customers, out of which 1/3 (approx.0.5% of total sale persons) sold products not matching their customers. In this case the bank used a foreseen internal procedure to verify the situation.
We suggest to consider the possibility of using different remuneration for different products and adding mechanisms of mis-selling control.
Re. 1.7
This requirement is already used for remuneration of MRT (and in relation with CRDIV). Still, the roles of MRT and sales persons are very much different, so the way their respective remuneration systems are organized cannot be compared.
The Guideline does not define the relation between the fixed and variable remuneration.
The remuneration systems also have provisions to reduce the variable remuneration in specific cases, which is related to quality standards and performance evaluation. It is worth keeping in mind that levels of variable remuneration for retail sales persons are motivative only when the remuneration is paid out in a short perspective.
Notes: Recommendation S of Polish Financial Supervisory Authority on good practice in the management of credit exposures secured by mortgages
Recommendation T of Polish Financial Supervisory Authority on good practices in the management of retail credit risk
The wording is so general that in fact each bank may be accused of not complying with the rule during an external inspection. The description of this item must be defined more precisely.
The regulations impose additional administrative requirements on banks, e.g. keeping documentation related to the policy (probably including monthly remuneration data) for at least 5 years, which is quite a task bearing in mind the number of bankers who will undergo this procedure. To be able to collect all the necessary data and documentation we need to know in advance what exactly is required.
The draft Guidelines add new control functions to the banks activities, which results in bearing additional costs. Also, proposed at least annual reviews of remuneration policies and practices covering hundreds to thousands of sales persons, is time-consuming and is much more complex and costly than the remuneration issues of MRT.
The frequency of reviews and number of new solutions to be introduced, e.g. remuneration committees for sales persons, will require creating additional job positions for these tasks, not mentioning the employment of external advisory institutions to design and update the remuneration policies. All these costs, altogether quite high, will have to be borne by the bank.
We suggest that the obligation to follow this guideline should undergo the principle of proportionality, e.g. in relation with the number of employees covered by this regulation.
No, we do not. On the contrary, we assume that there is a need of eliminating certain requirements which add new obligations on banks and create additional costs where it is not necessary. Besides, especially in this document there is a need of balancing the interests of customers, sales person and bank.
The new requirements undermine the foundation of retail bank functioning. When implemented, they will cause a visible decrease of receipts from retail business line and at the same time a significant increase of the costs of the banks functioning. Such a change will mostly influence smaller banks which will either disappear from the market, or will be taken over by large international banks. This will cause a decrease in competition on the market, and consequently will weaken the position of the retail consumer.
What is important in this case is the use of proportionality principle.
Detailed comments to it.2: Subject matter, scope and definitions (p.13 of Consultation Paper)
Re. 2.8
The draft Guidelines provide a possibility of adding the small and medium-sized enterprises to the list of customers covered by this document.
There are in fact 2 reasons why this does not make sense:
1. While it is possible that a private person may have no or limited knowledge of the banking products or services offered and therefore should be supported by various regulations, an enterprise is a legal entity present and acting on the market, and one of its basic tasks is financial management of the company.
2. The service and scope of products for individuals and companies are very different, so having a unified approach for these 2 groups of customers, and making one common remuneration scheme for sale persons dealing with the two different segments of customers, is vague.
Re. 2.11.b
Bearing in mind the fact that remuneration of the investment companies is already regulated by ESMA guidelines (MiFID), these companies should be excluded from EBA Guidelines. Otherwise, if these companies undergo the regulations of EBA and ESMA, there might appear discrepancies and various interpretations of parts of these two documents, causing unnecessary problems.
Re. 2.13. (Definitions)
The definition of “relevant persons”, especially “directly or indirectly managing a person” offering or providing products or services to consumers, must be more precise.
E.g. If “indirectly” means indirect supervision over employees of an agency which has an outsourcing agreement with a bank to offer the bank’s products to customers, it is ok. But if it means indirect supervision within the bank structure, then how many superiors will be covered by this requirement? Would it be all superiors up to the member of the board?
In our opinion it would be fine if it is only the superior of the relevant person.
Also, the definition of remuneration covered by the draft of Guidelines is too wide, because it refers to both monetary and non-monetary remuneration, including a company car or mobile phone.
This provision goes too far. The definition of remuneration should cover only monetary remuneration.

Comments to Rationale, it.3.2.15 (p.8 of Consultation Paper)
This item resembles the provisions for MRT. It is difficult to accept the fact that the variable remuneration of a sales person is to be paid “in tranches over an appropriate time period in order to adjust for, and take into account, the long term outcomes for the consumers”. First, the sales person has no influence on the design of the product. Secondly, the sales person may not be able to foresee long-term effect of product on the customer’s condition in future. Not mentioning the fact, that there are many other than bank-related factors influencing the financial standing of customer (e.g. health problems, divorce, etc).
If such a provision comes into force many products for which the variable remuneration will be extended in time will not be sold.

Additional comments
Polish banking sector is highly regulated, which may also be the case in other EU countries. Therefore the National Authorities should have influence on the scope of implementation of these Guidelines, as well as the possibility to exclude certain banks from being subject to them.
We also strongly recommend to use the proportionality principle.
Polish Bank Association