Remuneration and performance management of sales staff (SYSC 19F)

In 2018, we implemented MiFID II requirements on staff incentives and the remuneration of sales staff and advisers. The rules are designed to help prevent failures in the sales process and to make sure that sales staff and advisers are not remunerated in a way that creates incentives for staff to sell products inappropriately. 

Under the rules, firms must not remunerate or assess the performance of their own staff in a way that conflicts with their duty to act in the best interests of their client, or provides an incentive for recommending or selling a particular financial instrument when another product may better meet the client’s needs.

Scope

SYSC 19F applies to:

• common platform firms (e.g. MIFIDPRU investment firms, banks, building societies, designated investment firms and dormant account fund operators) but excluding collective portfolio management investment firms
• MiFID optional exemption firms (firms that are exempt investment firms for the purpose of regulation 8 of the MiFI Regulations, eg financial advisers, corporate finance firms and venture capitalist firms operating in the UK) 
• third country firms (third country investment firms and UK branches of non-UK banks) in relation to activities carried on from an establishment based in the UK

Interaction with Remuneration Codes

Remuneration provisions are also included in the FCA Remuneration Codes which are dedicated to certain specific types of firms. While the Codes set out specific remuneration principles applicable to senior management of firms who are material risk takers (MRTs or code staff), SYSC 19D and G also contain a requirement applicable on a firm wide basis for remuneration policies to promote sound and effective risk management.

One of the ways this can be achieved is through a firm’s remuneration policy, including measures to avoid conflicts of interest.

The provisions in SYSC 19F largely affect staff who would not otherwise be captured as MRTs under the Codes.

It's important to note that one firm can fall under several Codes and/or remuneration requirements.

Relevant persons

The provisions in the UK version of Article 27(2) of Commission Delegated Regulation (EU) 2017/565 (the MiFID Org Regulation) and in SYSC 19F.1.3R-19F.1.4R also relate to ‘relevant persons’ (as defined in the Glossary to our Handbook).

The European Securities and Markets Authority (ESMA) has provided some guidance on the types of roles ('relevant persons') that would be captured under SYSC 19F in its Guidelines on remuneration policies and practices[1]. These include:

• client-facing front-office staff
• sales force staff (including line managers)
• financial analysts (whose marketing material may be used by sales staff to induce clients to make investment decisions)

In Brexit: our approach to EU non-legislative materials[2], we explain how we expect firms to continue to apply guidelines to the extent that they remain relevant.

Firms are reminded that it is up to them to ensure that they comply as appropriate with all relevant regulatory requirements, including the assessment of which persons correspond to the definition of ‘relevant persons’. They should note the reference to both the potential ‘direct’ and ‘indirect’ impact of relevant persons on investment services or corporate behaviour.