The Financial Services Authority (FSA) is on the offensive over sales incentives that result in mis-selling.
At an event in London this morning, FSA managing director and chief executive officer designate of the Financial Conduct Authority, Martin Wheatley, announced plans to tackle poorly designed schemes that can result in customers being sold products they don’t need and can’t use.
Addressing an audience of senior bankers, compliance officers, trade and consumer groups, Mr Wheatley said: “Financial institutions have changed their view of consumers from someone to serve to someone to sell to”.
Adding: “CEOs are ultimately accountable for the way their staff are incentivised, so we expect them to take a real interest in fixing this.”
For CEOs unclear about the task ahead, he explained: “The dictionary tells us incentives are something that incites an action, so firms need to ask what type of action it is they incite.
“Is it to get the best deal for the customer, or is it to get the best deal for the person or firm selling it?”
Finally, Mr Wheatley highlighted a range of serious failing brought to light by an FSA review of 22 firms’ sales incentive schemes, as follows:
Most incentive schemes were likely to drive people to mis-sell and these risks were not being properly managed.
Firms failing to identify how incentive schemes might encourage staff to mis-sell, suggesting they had not properly thought about the risks or simply turned a blind eye to them.
Firms failing to understand their own incentive schemes because they were so complex, therefore making it harder to control them.
Firms relying too much on routine monitoring of staff rather than taking account of the specific features of their incentive schemes.
Sales managers with clear conflicts of interests, such as a responsibility to manage the conduct of sales staff whilst themselves able to earn a bonus if their team made more sales.
Firms not doing enough to control the risk of mis-selling in face to face situations.