CONC 2.11 Remuneration and performance management policies, procedures and practices

Application

CONC 2.11.1R

1This section applies to a firm with respect to:

  1. (1)

    credit-related regulated activity; and

  2. (2)

    unregulated activity that is financed by a credit agreement in respect of which the firm is carrying on consumer credit lending or credit broking.

CONC 2.11.2R

1This section does not apply to a firm subject to:

  1. (1)

    any of the remuneration provisions in SYSC 19A (IFPRU Remuneration Code) to SYSC 19F (Remuneration and performance management of sales staff); or

  2. (2)

    remuneration provisions made by an EEA regulator pursuant to any of the following:

    1. (a)

      CRD; or

    2. (b)

      AIFMD; or

    3. (c)

      the UCITS Directive; or

    4. (d)

      MiFID.

Purpose

CONC 2.11.3G
  1. (1)

    1The purpose of this section is to amplify the requirements in Principle 3 and SYSC 4.1.1R to ensure firms identify and effectively manage the risks to customers that may arise out of firms’ policies, procedures and practices for the remuneration or performance management of their employees, appointed representatives and such of their individual agents within the meaning of CONC 14 who interact with customers.

  2. (2)

    This section does not apply to the commercial remuneration or commission arrangements between two or more separate firms.

  3. (3)

    The risks this section addresses may arise out of a firm’s policies for remunerating its employees, appointed representatives or individual agents for performance in carrying on credit-related regulated activities. Such risks may arise, for instance, where staff remuneration (for example, a bonus or commission) is determined in whole or in part by the volume or value of credit provided or debt collected. These risks may, in addition, arise where an individual’s formal (for example, annual appraisals) or informal (for example, day-to-day interactions with their line manager) performance management focuses on targets or measures of the volume or value of credit provided or debt collected.

  4. (4)

    These risks may also arise out of a firm’s policies for remunerating such individuals for performance in carrying on unregulated activities that are financed by credit agreements in respect of which the firm is carrying on consumer credit lending or credit broking. An example is where a firm incentivises an individual to sell or supply goods or services the purchase of which may be financed (in whole or in part) by a credit agreement in respect of which the firm is carrying on credit broking or consumer credit lending. The use of incentives in these circumstances creates the risk that the individual may, for example, provide or arrange credit to fund purchases when it is not appropriate to do so.

  5. (5)

    Nothing in this section requires a firm to act in a way that would be inconsistent with its obligations under employment or contract law.

Requirements

CONC 2.11.4R
  1. (1)

    1A firm must in relation to any risk of failure by the firm to comply with its obligations under the regulatory system arising from its remuneration or performance management policies, procedures and practices:

    1. (a)

      establish, implement and maintain adequate policies and procedures designed to detect this risk; and

    2. (b)

      put in place adequate measures and procedures designed to manage this risk.

  2. (2)

    A firm must, when deciding how to comply with (1), take into account the nature, scale and complexity of its business, and the nature and range of financial services and activities undertaken in the course of that business.

Examples of measures and procedures to manage risks

CONC 2.11.5G

1Examples of measures and procedures which firms might introduce, where appropriate, to manage the risks to which this section applies, include:

  1. (1)

    undertaking monitoring of the nature of sales activities and debt collecting;

  2. (2)

    collecting management information to enable the firm to monitor and identify trends or patterns in employee, appointed representative or individual agent behaviour that could be used to detect these risks;

  3. (3)

    establishing procedures to ensure appropriate actions are taken if an employee, appointed representative or individual agent is found to have behaved inappropriately; and

  4. (4)

    maintaining arrangements to ensure the approval, oversight and regular review of remuneration and performance management arrangements by an appropriate governance committee or senior management.

CONC 2.11.6G

1In relation to CONC 2.11.5G(1), where the activities of an employee, appointed representative or individual agent are monitored by that person’s manager, any potential conflicts of interest that arise should be adequately managed (for example, if the manager’s remuneration is affected by the volume or value of sales or of debt collected by that team member).

Non-Handbook guidance

CONC 2.11.7G

1A firm should also be aware of the finalised guidance entitled Staff Incentives, Remuneration and Performance Management in Consumer Credit.

[Note: see https://www.fca.org.uk/publications/guidance-consultations/gc17-6-proposals-staff-incentives-and-performance-management]