UK: financial services and the risks to customers from sales staff financial incentives

The Financial Services Authority has begun work to address the risks of mis-selling arising from the incentives received by sales staff working in retail financial services. This work will be continued by the new Financial Conduct Authority. In a review of 22 authorised firms (including banks, building societies, insurance companies and investment firms), the FSA found that most firms did not have effective systems and control in place to manage adequately the risks of mis-selling arising from sales staff incentives. In 20 of the 22 firms reviewed, the FSA found that the incentives schemes were structured in ways that increased the risk of mis-selling. In order to assist firms identify and manage the risks arising from their incentive schemes, guidance has been published by the FSA for consultation: see here (pdf). Where the potential for mis-selling from particular incentives cannot be mitigated, the guidance makes clear that those incentives should not be provided to staff.

Martin Wheatley, the managing director of the Conduct Business Unit in the Financial Services Authority and chief executive designate of the new Financial Conduct Authority, spoke about the FSA's findings and proposals in a speech today titled "The incentivisation of sales staff – are consumers getting a fair deal?": see here. The speech is noteworthy for its tone. Mr Wheatley makes clear that cultural change within institutions is required: customers should not, in his words, be regarded simply as sales targets. Moreover, he made clear that the behaviour and attitude of firms - from the boardroom to point of sale - would be examined and assessed by the new FCA as part of its consumer protection role. A short video extract from Mr Wheatley's speech is available below (with acknowledgements to the BBC).