FSA crackdown on incentives is welcome but long overdue

There are times when I do not know whether to praise an FSA initiative or tear my hair out in frustration.

The ecstatic: ‘Yes! Yes! Yes!’ is often tinged with the nagging question: ‘But why has it taken so long to get here?’

Last week the FSA announced it planned to outlaw sales bonuses that encourage mis-selling. Fantastic.

But wait a moment… it is almost a quarter of a century since banks began flogging personal pensions to nurses and teachers along with a whole of life policy if they could slip it in.

So finally, after a litany of mis-selling both on the FSA’s watch and that of previous regulators, we get a review of incentive schemes operated by 22 banks, building societies, insurers and investment firms.

The review is a coruscating indictment of a system that has cost consumers billions of pounds and helped to bring the whole financial services sector into disrepute.

It found that most incentive schemes were likely to drive people to mis-sell and these risks were not being properly managed.

It further discovered that firms failed to identify how incentive schemes might encourage staff to mis-sell, suggesting they had not properly thought about the risks or simply turned a blind eye to them.

Incredibly, it said that firms were failing to understand their own incentive schemes because they were so complex.

And it highlighted clear conflicts of interest for sales managers, such as a responsibility to manage the conduct of sales staff, while themselves being able to earn a bonus if their team made more sales.

The FSA saw many poorly-managed incentive schemes that had a clear risk of benefiting sales staff and managers, rather than customers. One firm has been referred to the FSA’s enforcement division.

So the FSA or Financial Conduct Authority, as it will become, is finally going to tackle one of the core problems behind bank mis-selling.

In fact Martin Wheatley, chief executive designate of the FCA, last week declared war on these incentives.

“We, as the regulator, intend to change this culture of viewing consumers simply as sales targets and I am going to be personally involved in getting this right,” he told an audience of senior bankers and compliance officers at a Thomson Reuters Newsmakers event last week.

And he made it clear that chief executives will be held accountable.

But does this all not feel rather like shutting the stable door after the horse has bolted, run three times round the meadow and stripped the field of grass?

You and I knew that these incentives were key to a culture steeped in providing rotten advice to consumers. So why did the FSA not act sooner?

The answer has to be that the FSA itself is undergoing a much-needed culture change as it metamorphoses into the FCA.