The Financial Ombudsman Service has hit out at banks for selling complex products with sales incentives as a “recipe for disaster”.
Speaking at a fringe event at the Liberal Democrat conference in Brighton today, lead ombudsman on banking, loans, consumer credit and mortgages Jane Hingston said the bonus culture in banks needs to change.
Earlier this month, the FSA launched a crackdown on banks’ sales incentive schemes after a year-long review into the issue. The regulator is also investigating Lloyds Banking Group over its sales incentives.
Hingston said: “Bonuses are really blunt instruments. We need to see a change in the way banks target and incentivise their staff because it is on the ground where the problems occur.
“I see a lot of people in financial services providers, in the branches and call centres, who do not understand how the products they are selling work in practice. Innovation is a buzzword and everyone wants to make something new and exciting but the problem is that it is hard to keep people up to speed on what the product does for the consumer. When you add the method of remuneration to it then it is a recipe for disaster.”
Hingston says that staff need to be properly trained to know what they are selling, which would lead to fewer complaints to the ombudsman.
Lib Dem deputy chief whip Lord Richard Newby said: “Banks have to start paying staff in a way that does not incentivise perverse or unethical behaviour. In many cases that has not been the case in the past, but banks under the threat of, and because of, regulation are changing the way they are paying bonuses. It will change some behaviour and it is very necessary.”
Labour peer and Consumer Credit Counselling Service chair Lord Wilf Stevenson said the payment protection insurance misselling scandal illustrates a running problem with the financial sector
He said: “The major sellers of financial products are more interested in the profit they can make and less in the process and provision of services.”