ESMA has recently published its guidelines on remuneration policies and practices under MiFID.  This follows on from a consultation undertaken by ESMA in late 2012 (please click here for our previous article on this). 

The guidelines apply to relevant staff of investment firms, credit institutions and fund management companies when providing investment services. Such firms must ensure that they have appropriate remuneration policies and practices in place, bearing in mind the obligation to act honestly, fairly and professionally and in the best interests of their clients.  Remuneration practices that are not compatible with these obligations are not MiFID compliant and securities regulators will need to intervene accordingly when carrying out their supervisory duties. 

Improving remuneration arrangements will help create the right incentives and prevent mis-selling by investment firms, credit institutions and fund management companies.  The key obligations of the guidelines centre on the governance and design of remuneration practices and controlling the risks that such practices create.  The guidelines define remuneration as all forms of payments or benefits provided directly or indirectly by firms to staff involved in the provision of investment and/or ancillary services to clients.  Such staff are those who can have a material impact on the services provided and include:

  • Client-facing front-line staff
  • Sales force staff
  • Other staff indirectly involved in providing investment services and whose remuneration may create inappropriate incentives to act against the best interests of clients

The guidelines are also addressed to national securities regulators that supervise and enforce the MiFID requirements.  These regulators are expected to comply with the guidelines and will have two months, from when the guidelines are published in the official languages of the EU, to inform ESMA whether they intend to do so, or explain otherwise.

The guidelines will become applicable to market participants 60 days after the expiry of this deadline.