FSA has published the results of a review into how financial institutions’sales forces are incentivised. It found that poorly designed incentive schemes can encourage a culture of mis-selling. FSAsuggests that firms might have turned a blind eye to the risks arising from incentive schemes. In line with its new supervisory approach of intervening earlier to reduce the causes of consumer detriment, FSA is proposing guidance on what action it expects from firms and will be closely monitoring this area. This guidance provides examples of incentive scheme features that significantly increase the risk of mis-selling. It also identifies the following good practice in managing the risk and governance of incentive schemes:

  • firms should use a wide range of management information to analyse trends, paying particular attention to those staff selling the most;
  • checking that the sales manager’s role is not affected by conflicts of interest, as the manager may earn incentives based on the sales made by the staff they supervise;
  • monitoring calls to identify inappropriate staff behaviour; and
  • senior management should be involved in overseeing incentives schemes.

FSA expects firms to:

  • properly consider if their incentive schemes increase the risk of mis-selling and, if so, how;
  • review whether their governance and controls are adequate;
  • take action to address any inadequacies –this might involve changing their governance and/or controls, and/or changing their schemes;
  • where risks cannot be mitigated, take action to change their schemes; and
  • where a recurring problem is identified, investigate, take action and pay redress where consumers have suffered detriment.

Martin Wheatley, announcing the results of this review and the proposed guidance, said FSA wants to stamp out bonus or other schemes within the culture of financial institutions that make customer service staff see consumers as sales targets rather than someone to serve. He gave the example of payment protection insurance, where incentive schemes proved to be “rotten to the core”, and demanded a cultural change that must come from the top of financial institutions. The consultation closes on 31 October. (Source: FSA Guidance Consultation on Risks to Customers from Financial Incentives and Martin Wheatley Speech)