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).

Europe: gender diversity of company boards - a quota from Europe and updated UK data

Details of the European Commission's proposals regarding the gender diversity of company boards are beginning to emerge. The Financial Times contains a report titled "EU pushes 40% quota for women on boards" referring to proposals under discussion within the Commission for a Directive requiring at least 40% of non-executive positions to be held by women: see here (subscription required). The quota would apply to companies on the basis of turnover and number of employees. Sanctions for non-compliance are envisaged (e.g. fines) but how and when these are imposed would be left for Member States to decide. The draft proposals are also being reported by Deutsch Welle: see here.

Meanwhile, in the UK the Professional Boards Forum has today published updated figures regarding the gender diversity of FTSE100 and FTSE250 company boards: see here. This reports that 44% of FTSE100 board appointments since 1 March 2012 have been women. 17.3% of FTSE100 directors are women (the figure for FTSE250 companies is lower at 11.3%). It is also reported that 8 FTSE100 companies have no female directors.

Singapore: the corporate governance of insurers

Earlier this year the Monetary Authority of Singapore published a consultation paper containing, amongst other things, proposals to extend the application of the MAS Insurance (Corporate Governance) Regulations and MAS Guidelines on Corporate Governance for Banks, Financial Holding Companies and Direct Insurers to all locally incorporated insurers and reinsurers (see here). MAS published a summary of the feedback received, together with its response, last month: see here (pdf). MAS states that it is proceeding with its proposal to extend the Regulations and Guidelines to all locally incorporated insurers and reinsurers.

UK: computer trading in financial markets - policy proposal evaluation

In November 2010 the Department for Business, Innovation and Skills launched a project to consider the future of computer trading in financial markets: see here. As part of this project a working paper has recently been published titled 'Economic impact assessments on MiFID II policy measures related to computer trading in financial markets': see here (pdf). The paper considers evidence evaluating the likely effectiveness and benefit of various policy proposals including notification of algorithms, circuit breakers, minimum tick size requirements, market maker obligations, minimum resting times and minimum order-to-execution ratios.

UK: financial regulation - complexity demands simplicity

Andrew Haldane, the executive director for financial stability at the Bank of England, delivered a speech last week titled 'The Dog and the Frisbee': see here (pdf). In a wide ranging speech, Mr Haldane expressed concern with the growing complexity of regulatory responses to the financial crisis, including Basel III and developments in the UK and USA, and argued that regulation should be grounded in simplicity. He noted, however, that this would require a dramatic change of approach by regulators.