Risks to Customers from Staff incentive Schemes (UK)
Following research that revealed a significant number of consumer credit firms have inadequate systems to manage the risks that their staff incentive schemes can pose to consumers, the Financial Conduct Authority is seeking views on proposals setting out how it believes these risks should be managed.
A ‘thematic review’ carried out by the FCA of 98 companies offering consumer credit either as their primary business activity or as an ancillary to a main activity such as retailing goods found that
- 88% paid staff some form of variable remuneration
- 32% had staff where the variable element made up most of their pay …
- … including 15 firms that paid staff on a 100% commission basis
While recognising that firms may want to incentivise their staff to achieve more, the FCA also requires that they take steps to ensure any risks resulting from incentive schemes are adequately identified and managed.
It considered that the risks to consumers were particularly increased by schemes where
- commission accounted for most, or all, of the pay earned by customer-facing staff
- different rates of commission were earned for different products or products sold on different terms
- the commission rate varied when certain targets were attained
In addition to a proposed new rule and guidance for the Consumer Credit sourcebook, ‘Staff incentives, remuneration and performance management in consumer credit: Findings from our thematic review and proposed new rule and guidance’ includes the proposed text of non-Handbook guidance designed to help consumer credit firms understand what is expected of them.
It includes
- examples of different kinds of incentives
- how they affect risks to customers …
- … and how firms can control those risks