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SYSC 19F.1 MiFID remuneration incentives

Application

SYSC 19F.1.1 R
  1. (1)

    1SYSC 19F.1 applies to:

    1. (a)

      a common platform firm, unless it is a collective portfolio management investment firm;

    2. (b)

      a MiFID optional exemption firm;

    3. (c)

      a third country firm; and

    4. (d)

      a UKbranch of an EEA MiFID investment firm, unless it is a UCITS investment firm or an AIFM investment firm.

  2. (2)

    In relation to a firm that falls under (1)(c), SYSC 19F.1 applies only in relation to activities carried on from an establishment in the United Kingdom.

Purpose

SYSC 19F.1.2 G

2This chapter contains rules implementing article 24(10) of MiFID and on remuneration policies and practices.

MiFID requirement on remuneration incentives

SYSC 19F.1.3 R

2A firm which provides investment services to clients must ensure that it does not remunerate or assess the performance of its staff in a way that conflicts with its duty to act in the best interests of its clients. In particular, a firm must not make any arrangement by way of remuneration, sales targets or otherwise that could provide an incentive to its staff to recommend a particular financial instrument to a retail client when the firm could offer a different financial instrument which would better meet that client’s needs.

[Note: article 24(10) of MiFID]

Remuneration policies and practices

SYSC 19F.1.4 R
  1. (1)

    2A dormant account fund operator in respect of its investment services and ancillary services, a MiFID optional exemption firm in respect of its investment services and ancillary services and a third country firm in respect of its MiFID or equivalent third country business must:

    1. (a)

      define and implement remuneration policies and practices under appropriate internal procedures taking into account the interests of all the clients of the firm, with a view to ensuring that clients are treated fairly and their interests are not impaired by the remuneration practices adopted by the firm in the short, medium or long term. Remuneration policies and practices must be designed in such a way so as not to create a conflict of interest or incentive that may lead relevant persons to favour their own interests or the firm’s interests to the potential detriment of any client;

    2. (b)

      ensure that their remuneration policies and practices apply to all relevant persons with an impact, directly or indirectly, on investment services and ancillary services provided by the firm or on its corporate behaviour, regardless of the type of clients, to the extent that the remuneration of such persons and similar incentives may create a conflict of interest that encourages them to act against the interests of any of the firm’sclients; and

    3. (c)

      ensure that its management body approves, after taking advice from the compliance function, the firm’sremuneration policy. The senior management of the firm must be responsible for the day-to-day implementation of the remuneration policy and the monitoring of compliance risks related to the policy.

  2. (2)
    1. (a)

      Remuneration and similar incentives must not be solely or predominantly based on quantitative commercial criteria, and must take fully into account appropriate qualitative criteria reflecting compliance with the applicable regulations, the fair treatment of clients and the quality of services provided to clients.

    2. (b)

      A balance between fixed and variable components of remuneration must be maintained at all times, so that the remuneration structure does not favour the interests of the firm or its relevant persons against the interests of any client.

SYSC 19F.1.5 G

2A firm should also be aware of:

  1. (1)

    in the case of a common platform firm (but excluding a collective portfolio management investment firm), the requirements on remuneration in article 27 of the MiFID Org Regulation applying to it;

  2. (2)

    the requirements in relation to remuneration policies (SYSC 4.3A.1AR) and conflicts of interest (SYSC 10.1.7R);

  3. (3)

    the Finalised Guidance 13/01 entitled ‘Risks to customers from financial incentives’ published in January 2013; and

  4. (4)

    the Finalised Guidance 15/10 entitled ‘Risks to customers from performance management at firms’ published in July 2015.