Risks posed to customers from incentive schemes

The FCA is continuing the review work started by the Financial Services Authority (FSA) into firms' remuneration and incentive schemes, and the risks which these may pose to customers.

In 2017 the FCA published findings of their Thematic Review on staff remuneration and
incentives, for example how dealers and finance providers pay commission to their
own staff, and issued a consultation on changes to CONC along with draft guidance.

Also, as part of a wider exploratory work being conducted currently on the motor finance market, the FCA are reviewing commission arrangements between motor finance providers and dealers to ensure they are appropriately managed and do not cause harm to customers. 

Until the FCA's above workstreams have been finalised, firms are expected to fully consider earlier guidance produced by the FSA and the FCA's Thematic Review and take appropriate action. 

 

The FCA will continue to focus on the issue of financial incentives in its supervision of the financial services markets because it believes it to be an area of inherent risk to consumers. Smaller firms are considered to be less engaged with this issue – so the FCA will direct its focus towards them.

It will also look at the related areas of how firms manage the performance of their sales staff and whether pressure put on sales staff (for example, the setting of sales targets) increases the risk of mis-selling.  A customer's claim or complaint can include allegations of things done, or not done, by a lender's agent (which may include a motor dealer under Section 56 of the CCA).

The FCA considers that many firms need to improve their management information (MI) to make sure they have the right information to identify areas of increased risk from the features of their incentive schemes.

The FSA Guidance, published in January 2013, set out a number of examples of good and poor practice, which are summarised below.