The FSA is planning to take action against banks and providers that pay incentives to their direct salesforces but fail to manage the risk posed by such incentive schemes.
The regulator’s retail conduct risk outlook, published this week, sets out what the FSA sees as the most significant risks in the retail investment market over the next 18 months.
In the past year, the FSA has carried out thematic work on financial incentives of in-house salesforces across a sample of firms and sectors to assess whether financial incentives increase the risk of inappropriate selling. The regulator also looked at whether these risks were adequately controlled.
The regulator says: “At an individual firm level, we have found incentive schemes that significantly increased the level of risk, which was not being adequately mitigated. We are working on the next steps, including taking action against firms.”
The FSA is also considering publishing guidance or changing its rules on “high risk reward arrangements where the risks may be difficult to control”.
The regulator says it will factor in European developments, which will potentially lead to guidelines on salesforce remuneration in investment firms, as part of any review of its incentive rules.
It has categorised firms’ reward policies and practices as an emerging risk, which it defines as a risk where it has evidence of poor conduct in firms but little or no evidence as yet of widespread consumer detriment.
Facts and Figures Financial Planners managing director Simon Webster says: “First, the FSA said there is a risk of commission bias, now it says there is a risk of sales bias. The joke is the risk has always been sales bias and the RDR was a sledgehammer to crack the wrong nut.”