What is this article about?
The critical regulatory landscape that firms in the payment services industry must navigate and the importance of compliance to avoid regulatory scrutiny and disciplinary actions.
Why is it important?
Understanding and adhering to payment services and sales staff remuneration regulations is crucial for ensuring consumer protection, regulatory compliance, and competitive advantage in a complex and evolving financial services landscape.
What’s next?
Aligning remuneration policies with the Consumer Duty regime, conducting regular reviews, and integrating comprehensive compliance frameworks to maintain regulatory adherence and strategic advantage.
Our practice regularly delivers payments training sessions to a diverse range of bank and non-bank payment service providers. These sessions consistently highlight the significant volume of regulatory obligations firms must navigate beyond the Payment Services Regulations 2017, the Electronic Money Regulations 2011, and the Payment Account Regulations 2015.
While some ancillary rules are readily identifiable, others often escape the attention of risk and compliance teams. The extent to which these rules apply depends heavily on the nuances of each firm’s nature and business activities. However, payments firms are commonly exposed to other sources of regulation, including (but not limited to):
The Financial Conduct Authority’s (FCA’s) Principles for Business and other parts of the Handbook:
Firms generally recognise the applicability of the rules mentioned above. However, we have found a limited awareness and bespoke compliance frameworks for meeting the FCA’s expectations regarding the European Banking Authority (EBA) Guidelines on Remuneration Policies and Practices Related to the Sale and Provision of Retail Banking Products and Services.
The Guidelines were published in September 2016 and took effect in January 2018, specifying requirements for the design and implementation of remuneration policies and practices governing the offering or provision of banking products and services to consumers (payment services and electronic money included). It ultimately aims to protect consumers from undesirable detriment arising from the remuneration of sales staff.
Despite Brexit, EBA sources remain largely relevant for UK payments and e-money firms. The FCA has clarified that European Union (EU) non-legislative material remains pertinent, and firms are expected to continue applying EBA guidelines to the extent they remain relevant. This means considering the risks and objectives targeted by the guidelines and taking them into account where applicable.
Protecting customers from undesirable detriment arising from sales staff remuneration remains a key objective for the FCA. Inappropriate sales remuneration frameworks can foster unhealthy cultures, driving behaviours that harm markets and consumers. Numerous FCA-regulated firms have faced regulatory scrutiny and disciplinary action due to conduct failings linked to remuneration policies that incentivised undesirable behaviours and mis-selling.
Within the context of payments and e-money firms, the guidelines require robust governance arrangements related to remuneration policies and practices. The guidelines cover the following four key components:
Key elements in the design and implementation of remuneration policies should include (though not exclusively):
Firms should document their remuneration policies and practices and retain them for audit purposes for at least five years from the last date that they applied. This documentation should include (but not exclusively):
A firm’s management body should approve and retain responsibility for remuneration policies and practices. In the event a firm has a remuneration committee, its advice should be sought, along with Compliance’s review to confirm adherence to the guidelines. Any changes should be approved by the firm’s management body.
Finally, monitoring requirements establish at a high level that:
The Consumer Duty regime explicitly acknowledges that remuneration structures can harm retail customers. Therefore, these structures should be designed to deliver good outcomes for customers.
For instance, fair value assessments within the context of distributorship arrangements demand taking into account the impact of remuneration structures, investigating if they result in:
Also, firms’ governing bodies are expected to monitor and ensure that remuneration policies are adequately contextualised under the Duty.
Whilst compliance with one regime does not automatically translate into compliance with the other, understanding the interconnectedness between both frameworks can unlock synergies and form a more robust compliance narrative and supporting evidential framework. This approach transforms regulatory compliance from a tick-box exercise into a strategic advantage.
The regulatory burden on firms continues to grow, but those that put their customers at the heart of their business will necessarily gain a competitive advantage. Ensuring that remuneration structures drive the right culture and sales practices, leading to customers receiving the correct product that meets their needs, must be the cornerstone of all businesses. Of course, adherence to the EBA Guidelines on remuneration practices is a key step in achieving these outcomes.
A deep dive into the Financial Crime 360 survey, highlighting key challenges, prevalent fraud types, and strategic responses across various financial sectors
CEOs discuss top challenges and priorities in a Payments Lab roundtable, focusing on technology, fraud prevention, and regulatory compliance.
The financial struggles of UK adults highlight the vital role and challenges of community finance institutions in promoting financial inclusion.
Log in to access complimentary passes or discounts and access exclusive content as part of your membership. An auto-login link will be sent directly to your email.
We use an auto-login link to ensure optimum security for your members hub. Simply enter your professional work e-mail address into the input area and you’ll receive a link to directly access your account.
Instead of using passwords, we e-mail you a link to log in to the site. This allows us to automatically verify you and apply member benefits based on your e-mail domain name.
Please click the button below which relates to the issue you’re having.
Sometimes our e-mails end up in spam. Make sure to check your spam folder for e-mails from The Payments Association
Most modern e-mail clients now separate e-mails into different tabs. For example, Outlook has an “Other” tab, and Gmail has tabs for different types of e-mails, such as promotional.
For security reasons the link will expire after 60 minutes. Try submitting the login form again and wait a few seconds for the e-mail to arrive.
The link will only work one time – once it’s been clicked, the link won’t log you in again. Instead, you’ll need to go back to the login screen and generate a new link.
Make sure you’re clicking the link on the most recent e-mail that’s been sent to you. We recommend deleting the e-mail once you’ve clicked the link.
Some security systems will automatically click on links in e-mails to check for phishing, malware, viruses and other malicious threats. If these have been clicked, it won’t work when you try to click on the link.
For security reasons, e-mail address changes can only be complete by your Member Engagement Manager. Please contact the team directly for further help.
