Financial services firms are still failing to properly manage the risks of sales incentive schemes and monitor poor behaviour in face-to-face sales conversations, says the FCA.
In the regulator’s latest review of sales incentives, published today, it says one in 10 firms with sales teams had higher-risk incentive schemes and were not managing the risk properly.
The FCA says while it found significant improvements at firms of all sizes, there are still a number of areas of concern where further work is needed.
The regulator says firms need to focus on:
- checking for spikes or trends in staff sales patterns to identify areas of increased risk;
- doing more to monitor poor behaviour in face-to-face sales conversations;
- managing the risks in discretionary incentive schemes and balanced scorecards, including the risk that discretion could be misused;
- monitoring non-advised sales to ensure staff who are incentivised to sell do not give personal recommendations;
- improving oversight of incentives used by appointed representatives; and
- recognising that remuneration that is effectively 100 per cent variable pay based on sales, increases the risk of mis-selling and managing this risk.
FCA chief executive Martin Wheatley says: “18 months ago we gave the industry a wake-up call and it recognised that a poor incentive culture had helped push bad sales practice, which led to misselling.
“We have seen some good progress but it is going to take time to see whether the changes firms have made to incentive schemes and their controls stick, and whether good beginnings are part of genuine cultural change. But consumers can be assured that this remains an area that we will be watching closely to ensure poor practice doesn’t return.”
The FCA says it will carry out further thematic work on sales incentives.
It says all the major retail banks have either replaced or made substantial changes to their financial incentive schemes, but warns that this progress will only be effective in reducing the risk of mis-selling if changes are embedded for the long term and part of wider cultural change.
The regulator says it has also made it clear that firms should not simply replace bonus schemes with other performance management measures, which can be just as capable of causing poor sales behaviour.