The Financial Conduct Authority has published proposals to require dealers to better manage risks of non-compliance in staff's pay and performance management.
And it has appealed for feedback in a consultation period between now and October 4, before implementing new regulations regarding staff incentives and performance management in Q2 2018.
It comes after an FCA thematic review to better understand the nature of staff incentives, remuneration and performance management in the consumer credit market.
The FCA found that, despite many of the 98 firms studied had taken positive steps, too many had high-risk elements in their incentive schemes and had either not recognises these risks or hadn’t managed those risks.
“We found that many firms, where consumer credit activities were ancillary to their main business – such as selling retail goods – as well as a number of lenders, had not properly assessed the risks associated with their consumer credit activi8ties, or the impact that staff incentives could have on those risks,” states the FCA’s consultation document.
It found the combination of incentives, performance management and related controls posed a high or very high risk of customer detriment in 64% of the firms in its sample whose primary business was not financial services, including retailers selling goods on finance.
The FCA regarded elements which particularly raised the level of risk included schemes where commission accounted for the majority of customer-facing staff’s pay, or different rates of commission were earned for different products, or the rate of commission varied depending on reaching certain targets.
It was also concerned by the risks if staff reviews and appraisals were heavily focused on sales performance.