FCA warns against ‘incentivising’ staff

Most firms are failing to adequately manage the risks of mis-selling arising from the way they incentivise their staff, the Financial Conduct Authority has warned.

The FCA stopped short of asking firms to remove incentives but did state that it expects firms to manage the risks created by them.

Where risks cannot be adequately reduced, firms should change the way staff are paid, the FCA said. It also said that it expects firms to investigate recurring problems, take action and pay redress to consumers who have suffered harm.

The regulator said this follows a review that it carried out across a variety of authorised firms, both large and small, including banks, building societies, insurance companies and investment firms.

One example of a financial incentive highlighted by the FCA is where advisers or sales staff have 100 per cent variable pay based on a share of commission or fee income. It now expects all firms to consider whether the way they pay staff increases the risk of mis-selling and how, as well as to review and change where necessary the way this risk is controlled.

This follows on from the FCA’s final guidance, published in January, called Risks to customers from financial incentives.

The FCA said it expects firms to look at the guidance, which includes specific guidance for smaller firms, and consider what changes firms may need to make to manage the risks in their firm.

The guidance applies to all firms in retail financial services whose staff deal directly with customers and are paid based on the results. This includes whether they are employed or self-employed, or paid a basic salary or not.

This can include sales staff, advice or service providers, discretionary or non-discretionary investment managers, intermediary firms and firms with appointed representatives.