The European Securities and Markets Authority (ESMA) recently published a consultation paper on its proposed Guidelines on remuneration policies and practices under MiFID.

The Guidelines aim to ensure that the pay and incentive structures for staff and their superiors do not circumvent MiFID requirements and create false incentives when selling financial products to retail investors. The Guidelines oblige firms to design, monitor and control remuneration policies and practices to ensure that no conflicts of interest arise. ESMA hopes that the consistent application of the Guidelines will help strengthen and harmonise investor protection.

The Guidelines provide that remuneration consists of all forms of payments or benefits provided directly or indirectly by firms to Relevant Persons, and may include monetary payments or benefits as well as non-monetary benefits. Relevant Persons are defined as those staff who can have a material impact on the investment/ancillary services provided and who can influence corporate behaviour. Client-facing front-line staff, sales force staff and other staff whose remuneration may create inappropriate incentives to act against the best interests of their clients, are all considered to be Relevant Persons. However the Guidelines are not limited to these staff and could also apply to Relevant Persons involved in complaints handling, client retention and even product design and development.

Next Steps

The consultation period for the Guidelines closes on 7 December 2012. The final report and final guidelines are expected to be published by the second quarter of 2013.

For further information, please contact one of the key contacts listed above or your usual contact in our Asset Management and Investment Funds Team.