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FCA raises concerns over networks’ oversight of sales incentives

The FCA has raised concerns that networks do not have sufficient oversight and understanding of the sales incentive schemes being operated by their appointed representatives.

In its latest review of sales incentives, published today, the regulator says principal firms are responsible for managing the risk of misselling and need to have sufficient understanding of any incentive arrangements in place at their AR firms. But it says this is not always happening.

The review found that in 16 per cent of incentive schemes, some or all business was sold through ARs who had their own sales staff.

Some of the principal firms informed the FCA they did not have any information, or had only partial information, about the financial incentives schemes the ARs used for their own sales staff or advisers.

The regulator says while many networks said they were in the process of getting sufficient information, this suggests that firms with ARs need to do more to understand the risks in the way ARs use incentive schemes.

The review also found that some financial services firms providing a non-advised service are not sufficiently monitoring the risk of staff giving advice.

It said this was mainly for face-to-face sales conversations, although some telephone sales areas were also falling short.

The review found that while bank branches and call centres have made significant improvements in incentive risks for areas such as current and packaged accounts, some higher risk schemes remain in other areas of banks, such as investment and protection sales.

FCA chief executive Martin Wheatley raised concerns about investment and protection sales incentives in a speech in October.

The review says that many new incentive schemes introduced by firms are discretionary and involve some form of ‘balanced scorecard’ where staff are appraised against a range of objectives, and not just sales.

The FCA says that while these schemes can reduce the level of risk they can still drive mis-selling, as sales are still taken into account.

It says firms should consider if scorecards or objectives are sufficiently balanced. The regulator warns that sales managers may be biased towards those with better sales results, particularly if they have a conflict of interest in how they are rewarded financially or otherwise themselves, or because they are used to viewing sales results as the most important factor.

It says firms need to ensure they can identify when this might occur and take appropriate action.

In addition, the review found that not enough firms are pro-actively monitoring face-to-face sales behaviour.

It says that while some firms have introduced or stepped up their approach to using pro-active testing of sales conversations, such as through mystery shopping, many firms are relying on observed interviews.

The FCA says this is unlikely to identify inappropriate behaviour driven by incentives, because staff can alter their conduct for the observed interviews.

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