Regulation  

FCA finds ‘poor practice’ in performance management

FCA finds ‘poor practice’ in performance management

The Financial Conduct Authority has conducted a thematic review into performance management, and found that while there are may not be widespread issues, there are instances of “poor practice”.

Today (27 July) the regulator has published its thematic review and finalised guidance on risks to customers from performance management at firms.

The guidance stated that where incentives are misaligned, or poor practices exist, these can lead to undue pressure on staff to sell products which can result in mis-selling. As well as addressing these issues, the regulator has engaged with a number of firms to discuss their approach to performance management.

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The finalised guidance found that there are indications 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.

It added that inappropriate performance management can sometimes lead to an excessive emphasis on sales results, and that this type of “undue pressure” may be hidden, which ultimately means that “the reality of daily life for some sales staff can be very different from the tone set at the top by senior staff or boards”.

The report said: “Pressure on sales results can be passed down the management line from senior management, due to the commercial drivers of the business and because sales revenue is often a key consideration in career progression and remuneration.”

The regulator said it has been made aware of intelligence from whistleblowers which suggest that in some cases, changes to reward structures may not have been accompanied by a genuine shift away from a sales-focused culture.

It has reviewed intelligence that highlights potential poor practices, met with a number of firms to discuss their approach to performance management and to understand how they identify and mitigate the risk of mis-selling, as well as meeting with other stakeholders and reviewing published information on performance management approaches.

The regulator has told all firms with staff who deal directly with retail customers to consider how their approach to performance management may increase their risk of mis-selling, how their governance and controls are adequate and taking action where required to ensure their risks are adequately managed.

The paper said: “Given the inherent risks in this area, we are taking a forward-looking approach. We will continue to focus on performance management and this report is the first step in a dialogue with industry on evolving practice in this area.

“Through our firm supervision work, we will continue to assess how firms are managing this risk and what changes they have made in response to this report, taking action where needed. We will also continue to act on intelligence from whistleblowers where appropriate and we will consider the need for any further work in the future.”

ruth.gillbe@ft.com