Regulation  

Sales pressures on staff causing mis-selling risk: FCA

Sales pressures on staff causing mis-selling risk: FCA

The FCA has urged firms to implement controls aimed at curbing the risk of mis-selling caused by performance management measures.

The regulator used its 15-page finalised guidance publication, Risks to Customers from Performance Management at Firms: Thematic Review and Guidance for Firms, to call on the financial services industry to look at how sales pressure could cause mis-selling.

The FCA warned that though it was important to manage how teams behaved and to make a business commercially sustainable, issues could arise if staff were under too much pressure.

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The paper 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.”

The FCA reviewed intelligence highlighting potential bad practices and met with firms to discuss how they approached performance management. It also reviewed published information on the subject and met with other organisations, including trade associations.

In its findings, the regulator warned: “Despite the benefits of good performance management, there will always be an inherent risk that poorly executed performance management can encourage or drive mis-selling because of pressure to meet individual targets or corporate plan objectives.

“Firms need to manage this risk and should pay particular attention to identifying poor practices that may create an undue level of pressure on staff, which is likely to further increase the risk of mis-selling.”

However, the FCA also focused on the behaviour of managers – warning that some could act unreasonably, while others may encounter conflicts of interest.

The paper said: “Undue pressure can arise when the behaviour of individual managers or senior managers goes well beyond the boundaries of what would be considered reasonable by rational observers.

“Middle managers are particularly likely to have to manage conflicts of interest to avoid poor performance management practice. They often have to balance objectives linked to the firm’s corporate plan with other objectives, such as the way products are being sold and ensuring the behaviour of staff is appropriate.”

The regulator has now urged senior management to make sure firms identify the risks of poor practice as well as calling on human resources departments to play a role in how firms set approaches to performance management.

Adviser view

Warwick Ivel, financial adviser for Yorkshire-based PenLife Associates, said: “I do know of bad practices regarding sales pressure in the past, so it is good to see measures taken on this.

“Any action plan on performance management should involve HR.”