The way staff in financial services firms are paid can most certainly affect their behaviour, and consequently then have an impact on the way customers are treated. For example, if staff are heavily incentivised via bonuses, commission or other perks, they can end up putting pressure on customers to purchase products that are not in their best interests.

The Financial Conduct Authority (FCA) has proposed a series of new rules regarding remuneration for the consumer credit sector, after finding in a thematic review that “some firms have inadequate systems and controls to manage the risks of staff incentives.”

The report says that many of the firms involved in the review had remuneration systems that exhibited some or all of the following risk factors:

• Commission making up the majority (or all) of the remuneration for certain staff members
• Different rates of commission being paid for selling different products
• Payment of commission, or the rate at which commission is paid, being dependent on reaching certain sales targets

The FCA adds that some of the firms also had inadequate systems for managing these high-risk remuneration systems. Six firms did not have any arrangements in place for monitoring their sales or collections activities, and in another eight firms the monitoring was carried out by line managers, whose own pay was dependent on the sales performance of the staff they were monitoring.

The FCA paper summarises the main risks that could arise from having a high-risk remuneration system, and from not managing this effectively, as:

• Customers receiving inaccurate or misleading information on the costs, benefits, risks, disadvantages and other features of credit products
• Customers being put under pressured to take out inappropriate or unaffordable products
• Customers in default or in arrears not being treated considerately

As a result of the concerns identified during the review, the FCA is proposing new high-level rules, under which firms would be obliged to have “adequate arrangements to detect and manage any risk of non-compliance with their regulatory obligations arising from their remuneration or performance management practices.”

The FCA’s review encompassed some 98 firms from different areas of the credit sector.

The FCA’s consultation ends on October 4, until which time firms and consumer groups are invited to have their say on the proposed new rules.

Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, said:

“The way firms pay and manage the performance of their staff is a key driver of culture and customer outcomes, and a continuing priority for the FCA. We expect firms to understand the effects their staff incentives might be having.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.