The FSA has clarified its tougher rules on sales incentives will apply to networks and firms providing services such as investment management, alongside all other retail financial services firms.
Between September 2010 and September 2011, the FSA reviewed the incentive schemes of 22 large and small firms, including banks, building societies, insurers and investment firms.
It found 20 out of the 22 firms assessed had features within their incentive schemes that increased the risk of misselling. Of those 20 firms, 11 were not properly addressing the increased risk of misselling. Lloyds Banking Group was referred to the FSA’s enforcement division as a result of the regulator’s investigation.
The FSA told firms last September to review their sales incentives schemes to see if they increase the risk of misselling, and to pay redress where consumers have suffered detriment.
Following the report, the industry asked the regulator to clarify who the rules apply to.
In its final guidance and feedback statement today, the FSA said it had been asked for more clarity around how the guidance affects directly authorised firms and appointed representatives, and particularly ARs who have their own sales staff.
The regulator said it was clear the guidance apples to both DAs and ARs, whether they are employed or self-employed. But it has added:
“Where an AR has their own sales staff or advisers, the principal firm is responsible for managing the risks from incentive arrangements and any misselling. Therefore, the principal will need to have a sufficient understanding of the AR’s incentive arrangements.”
The FSA has also admitted it could have been clearer that firms that provide a service, such as investment management, would also be subject to the sales incentive review.
It has amended its earlier guidance to say: “This guidance applies to all firms in retail financial services with staff [who] deal directly with retail customer transactions. This includes those involved in selling products or providing a service, advisers and those in discretionary and non-discretionary investment management roles.”