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September 6, 2012updated 13 Apr 2017 8:42am

UK’s FSA cracks down on mis-selling caused by sales incentives

Martin Wheatley, managing director of the FSA and CEO designate of the Financial Conduct Authority (FCA), has highlighted a range of disturbing findings following a review of 22 firms financial incentive schemes that encompassed insurers, banks, building societies, and investment firms. Speaking to an audience of senior bankers, compliance officers, trade and consumer groups, Martin Wheatley, managing director of the FSA and CEO designate of the Financial Conduct Authority (FCA), said: Financial institutions have changed their view of consumers from someone to serve to someone to sell to.

By LII editorial

Martin Wheatley, managing director of the FSA and CEO designate of the Financial Conduct Authority (FCA), has highlighted a range of “disturbing findings” following a review of 22 firms’ financial incentive schemes that encompassed insurers, banks, building societies, and investment firms.

Speaking to an audience of senior bankers, compliance officers, trade and consumer groups, Martin Wheatley, managing director of the FSA and CEO designate of the Financial Conduct Authority (FCA), said:  “Financial institutions have changed their view of consumers from someone to serve to someone to sell to.”   

Cultural change is needed, continued Wheatley and this change can only come from the top of an organisation.

Wheatley said the FSA, and in future the FCA, would work with the industry to help it make the necessary changes.  He also confirmed that he would be taking a lead role in bringing about these changes.

The UK’s Financial Services Authority (FSA) has therefore launched an initiative to tackle flawed sales bonuses that encourage mis-selling.

 

The FSA said the “disturbing findings” from its recent research of 22 firms found:

  • Most incentive schemes were likely to drive people to mis-sell and these risks were not being properly managed;

 

  • Firms failing to identify how incentive schemes might encourage staff to mis-sell, suggesting they had not properly thought about the risks or simply turned a blind eye to them

 

  •  Firms failing to understand their own incentive schemes because they were so complex, therefore making it harder to control them

 

  • Firms are now expected to consider carefully whether they have incentive schemes that increase the risk of mis-selling, review whether their governance and controls are adequate, and address any inadequacies – including changing the scheme where necessary and paying redress to customers that may have been mis-sold, according to the FSA.

 

The consultation closes on 31 October 2012 and the FSA is inviting any firm or person with an opinion on the management of incentive schemes to provide feedback.

The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013.

 

 

 

 

 

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