The Financial Conduct Authority has published findings on the risks posed to consumers by inappropriate practices such as sales incentives at firms dealing with retail customers.
The thematic review and guidance for firms, published today (16 March) stated that the key driver of culture is the way in which staff are incentivised and their performance is managed playing a key role.
The regulator said where incentives are “misaligned”, or poor performance management practices exist, these can lead to “undue pressure on staff to sell products, which can result in mis-selling”.
Whistleblowers and media articles have suggesting that, in some cases, the changes to reward structures may not have been accompanied by a genuine shift away from a sales-focused culture, the regulator found.
It warned that there are indications that in some cases the progress made on financial incentives may have led to an increase in pressure being placed on staff through other means, to achieve sales.
The regulator found an increase in the level of intelligence about poor performance management practices in sales areas.
“We have not identified evidence of widespread issues, but we have identified instances of poor practice through our follow-up work on whistleblowing reports,” read the document, adding that it has engaged with a number of firms to discuss their approach to performance management.
It added that despite the potential benefits, there will always be an inherent risk that poorly executed performance management can encourage or drive mis-selling because of pressure to meet targets and/or corporate objectives.
“Whilst some pressure is not unexpected, an undue level of pressure is likely to further increase the risk to customers,” the regulator stated. “Middle managers are particularly likely to have to manage conflicts of interest, where they often have to balance their objectives linked to sales results with other objectives, such as the way products are being sold.”
While the City watchdog noted it had no say in prescribing how firms manage the performance of their staff, it expects them to manage the risk of mis-selling effectively.
Therefore, it is consulting on guidance to help firms manage the risks in this area, including identifying where poor performance management practice may be leading to undue pressure.
Firms are invited to contribute to the thematic review and proposed guidance, with a deadline for responses of 15 May.
In June 2013, the FCA warned that most firms are failing to adequately manage the risks of mis-selling arising from the way they incentivise their staff, stopping short of asking firms to remove incentives, but stating it expected firms to manage the risks created by them.
peter.walker@ft.com
