4. Guidelines on remuneration policies and practices

1.1. Institutions should design and implement remuneration policies and practices that take into account the rights and interests of consumers. In particular, institutions should ensure that monetary and/or non-monetary forms of remuneration do not introduce incentives whereby relevant persons favour their own interests, or the institution’s interests, to the detriment of consumers.

1.2. When designing the remuneration policies and practices, institutions should consider whether these policies and practices introduce any risks of detriment to consumers and should mitigate such risks from arising.

1.3. The human resources function of institutions should participate in and inform the design of the remuneration policies and practices. In addition, where established, the risk management and compliance functions should provide effective input for the design of the remuneration policies and practices.

1.4. For the purpose of evaluating the performance of a relevant person, institutions should define in the remuneration policy and practices the appropriate criteria to be used to assess performance, taking into account the rights and interests of consumers.

1.5. When designing the remuneration policies and practices, institutions should consider both qualitative and quantitative criteria for determining the level of variable remuneration to ensure that the rights and interests of consumers are adequately considered.

1.6. Institutions should not design remuneration policies and practices that:

• a. solely link remuneration to a quantitative target for the offer or provision of banking products and services; or
• b. promote the offer or provision of a specific product or category of products over other products, such as products which are more profitable for the institutions or for a relevant person, to the detriment of the consumer.

1.7. Where the remuneration policies and practices allow for variable remuneration, institutions should ensure that the ratio between the fixed and variable components of the remuneration is appropriately balanced and takes into account the rights and interests of consumers. Furthermore, the remuneration policies and practices in place should allow the operation of a flexible policy on variable remuneration, including the possibility to pay no variable remuneration where appropriate.

1.8. Institutions should avoid unnecessarily complex policies and practices and unclear combinations of different policies and practices.

2.1. Institutions should document remuneration policies and practices, keep them for audit purposes for at least five years from the last date that they applied, and make them available to the competent authorities upon request. This documentation should include, but is not limited to:

• a) the objectives of the institutions’ remuneration policies and practices;
• b) the relevant persons falling within the scope of these policies and practices;
• c) how remuneration policies have been implemented in practice, including in particular the criteria for variable remuneration where variable remuneration is granted.

2.2. Before being allowed to offer banking products or services to consumers, relevant persons should be clearly informed in a simple and transparent manner of the remuneration policies and practices that are applicable to them.

2.3. The remuneration policies and practices should be easily accessible to all relevant persons of the institution.

3.1. The management body approves and retains ultimate responsibility for the institution’s remuneration policies and practices.

3.2. The management body should seek advice from the remuneration committee where established on the institution’s remuneration policies and practices in relation to the fulfilment of these Guidelines.

3.3. Where established, the compliance function should confirm that the remuneration policies and practices comply with these Guidelines.

3.4. Changes to the remuneration policies and practices should only be made with the approval of the management body.

4.1 Institutions should review, at least annually, their remuneration policies and practices to ensure compliance with these Guidelines. In particular, where an institution identifies that a residual risk of consumers’ detriment might arise as a result of the design of remuneration policies and practices as referred to in paragraph 1.2 of these Guidelines, the institution should assess under the review whether any of these residual risks are crystallising and causing detriment to consumers.

4.2 Where the review reveals that an institution’s remuneration policies and practices do not operate as intended or prescribed, the institution should amend its remuneration policies and practices in accordance with these Guidelines.

4.3 Institutions should establish effective controls to check that their remuneration policies and practices are being adhered to, and to identify and address incidents of non-compliance with these Guidelines.