The Autorité des marchés financiers du Québec publishes a draft guideline on incentive management for financial institutions

The Autorité des marchés financiers (“AMF”) recently published a preliminary version of its Guideline on Incentive Management (“Draft directive”), Which applies to insurers governed by Quebec law, financial services cooperatives, trust companies, savings companies and other authorized deposit institutions.

the Draft directive complete the AMF Guideline on Sound Business Practices, based on international best practices and on the experience of the AMF as a regulator. It partly covers the same ground as the current consultation of the CCIR-CISRO working group on incentive risk (in which the AMF plays a leading role), which could possibly lead to duplication or regulatory inconsistencies for the insurance sector in Quebec. No other province has published incentive management guidelines.

It should be noted that the Draft directive consultation is separate from the current more general consultation of the AMF on its update project Guideline on Sound Business Practices.

Released on November 4, 2021, the AMF’s announcement calls for public comment, with a filing deadline that has been extended to February 18, 2022.


One of the expectations set out in the Guideline on Sound Business Practices is that actual or potential conflicts of interest be avoided or managed in a manner that protects the principle of fair treatment of customers (“FTC”). the Draft directive focuses on the incentive mechanisms of financial institutions because of their potential, when not carefully designed or managed, to create conflicts of interest. It adds additional expectations related to the management of these agreements, which may include:

  • Monetary incentives, eg commissions or performance-based salaries / bonuses; and
  • Non-monetary incentives, eg performance-based rewards or privileges.

Performance criteria can be either quantitative (eg sales volume) or qualitative (eg customer satisfaction).


The AMF’s expectations fall into four categories, as follows:

  • Governance ;
  • Management of incentive arrangements;
  • Identification and assessment of the risks of practices that could harm the FTC; and
  • Quality report.

While the AMF claims to adopt a principled approach, the Draft directive uses language that is more “binding” in tone than one might expect and often appears to require financial institutions to take specific actions in order to achieve desired results. Throughout the Draft directive, the requirements / results are expressed as, for example, “ensure”, “meet” and “identify”, rather than, for example, “reasonably designed to” ensure, satisfy or identify.


the Draft directive summarizes the AMF’s expectations in terms of governance as follows:

The AMF expects the decision-making bodies of financial institutions to place the FTC at the center of decisions concerning the management of incentive systems.

The implications of this expectation for directors and officers are described in detail in the Draft directive.

While the Board of directors should normally set the tone for the FTC and provide high-level stewardship, while leaving the day-to-day implementation details to management, the Draft directive creates specific expectations for managers at the operational level:

  • Ensuring that committees tasked with monitoring changes in corporate structure and identifying practices that could affect the FTC also ensure that incentive plans are aligned with clients’ interests;
  • Ensure that incentive provisions that are not FTC compliant are changed in a timely manner; and
  • Ensure that customers who are harmed by a practice that negatively affects the FTC are treated appropriately.

The AMF’s expectations in the senior management include:

  • Oversee incentive agreements in order to manage any risk they represent for the FTC;
  • Review incentive arrangements in collaboration with risk management, compliance and human resources departments at least annually; and
  • Assess the impact of an identified practice that negatively affects the FTC and ensure that customers who are harmed by such practice are treated appropriately.

Management of incentive agreements

At the most general level, the Draft directive simply states that “the AMF expects the incentive schemes to be managed in such a way as to guarantee the FTC”. However, he develops this expectation in several ways:

  • The extension of the obligation to meet the obligations of the FTC to intermediaries and more broadly to any other person offering the products or services of the financial institution on their behalf, which seems, in the case of insurers, to potentially confuse the border between tied agents and independent brokers who are not subject to the control of the carrier; and
  • Establish a set of criteria for designing incentive mechanisms, which include detailed recommendations such as ensuring that (among others):
    • performance objectives are well defined;
    • the incentives are consistent with the expected level of service;
    • variations in incentive arrangements do not result in different fees for the same product depending on the intermediary offering it;
    • ensure that managerial incentives do not result in the application of pressure on staff or intermediaries that could adversely affect the FTC;
    • information is collected that enables the identification of individuals, sales teams, industries, products and trends that are particularly likely to adversely affect FTC; and
    • appropriate corrective actions are put in place, including chargeback mechanisms through which awarded incentives can be reclaimed.

Identifying and assessing the risks of practices that could harm the FTC

The AMF expects financial institutions to “identify and regularly assess the risks of practices likely to have a negative impact on the FTC resulting from the incentive systems”. Two annexes to Draft directive provide additional details, as follows:

  • Lists in Annex A 17 “key indicators” that an individual or sales team is incentivized in a way that creates an increased risk of adversely affecting the FTC, including, but not limited to, frequent chargebacks / product replacements / cancellations, disproportionate sales of commission products high and a lack of variety in the products sold.
  • Lists in Annex B 24 incentive features which increase these risks, including, but not limited to, “Incentives granted for the sale of a specific product for a limited period of time”, “Incentives granted on a discretionary basis” and “Monetary incentives representing a significant portion of the remuneration of a person ”. The appendix also identifies certain incentive risks that may be created in a financial institution’s agreements with intermediaries.

Identifying and assessing these risks requires:

  • Regular review of incentive arrangements;
  • Focus on incentives based primarily on quantitative performance targets and criteria;
  • Consideration of the combined impact of several sales agreements on the same sale, sales campaigns focused on particular products and incentive agreements of intermediaries (among others); and
  • Assessment of the likelihood that the practices could negatively affect the FTC.

Quality report

Finally, the AMF expects financial institutions to put in place controls to identify any sales or inappropriate practices related to incentive agreements. This expectation is greatest for incentive deals that are most likely to result in practices that negatively affect the FTC.

Quality monitoring includes:

  • Ensure that those responsible for monitoring are well trained and independent;
  • Taking into account the risk to the FTC that each type of practice poses;
  • Use various types of controls to assess interactions with customers (eg direct observation, mystery shopping, customer surveys); and
  • Regularly analyze the results of sales quality checks to ensure that they are effective in identifying concerns or issues related to the FTC.

Next steps

As noted above, the comment period ends on February 18, 2022. For more information and instructions for submitting comments, please see the AMF announcement of November 4, 2021.

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Marianne R. Winn