The Financial Conduct Authority has begun a thematic review of staff remuneration and incentives at firms offering consumer finance, such as car dealers.

The FCA said the review will cover a “broad range of consumer credit sectors and firms where consumer credit is secondary to their main business”.

“The purpose of our review is to understand the nature of staff incentives, remuneration and performance management arrangements in the consumer credit market. We will focus on the risks that can arise and how firms control and mitigate those risks. We will seek to examine good and poor practices,” said the FCA.

“Supervisory work that we have carried out on other issues suggested many consumer credit firms may be operating high-risk incentive schemes, which can often lead to poor consumer outcomes if not managed effectively.”

Between 2012 and 2014 the FCA and its predecessor, the FSA, found a number of high street banks and insurers had incentive schemes likely to drive mis-selling, and few had fully considered those risks or implemented controls to manage those risks.

Managers' bonuses

In some cases, the FCA identified a possible conflict of interest where managers were paid a bonus based on the sales made by staff they supervised.

“We will seek to understand if similar or new issues are also present across the consumer credit sector.”

Currently the FCA is taking a desk-based review of firms’ incentive policies, remuneration arrangements and controls, however from the fourth quarter of 2015 through to early 2016 it plans to conduct on-site visits and more detailed testing on a selection of firms.

The results of the FCA thematic review are likely to be published in spring 2016.