FCA consults on proposals for staff incentives in consumer credit organisations

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The Financial Conduct Authority (FCA) is consulting on proposals designed to help consumer credit organisations manage risks associated with staff incentives and performance management processes.

The FCA, which has overseen the regulation of consumer credit since April 2014, has published findings from a thematic research report that surveyed 98 consumer credit organisations. The research found that some of these organisations had not recognised the potential harm to customers that its incentive schemes could pose, and therefore did not have adequate systems or controls in place to manage the risks of these staff incentive arrangements. Examples include features of bonus calculations or where retail organisations pay bonuses on the sales of retail goods rather than the associated finance product.

In light of the research findings, the FCA is consulting on a package of rules and guidance to help consumer credit organisations, such as banks, insurance organisations, and investment firms, identify and manage risks effectively.

The proposed guidance will include examples of different kinds of incentives, how incentive schemes affect risks to customers, and how organisations can control these risks. The FCA will also provide examples of good practice for robust approaches to risk management. It will also include a high-level rule requiring organisations to establish adequate arrangements to detect and manage any risk of non-compliance with regulatory obligations arising from their remuneration policies and performance management practices.

The rule and guidance would apply to an organisation with respect to its credit-related regulated activity and unregulated activity that is financed by a credit arrangement for which the firm is carrying on consumer credit lending or broking.

The consultation will run until 4 October 2017.

Jonathan Davidson, executive director of supervision, retail and authorisations, said: “The way [organisations] pay and manage the performance of their staff is a key driver of culture and customer outcomes, and a continuing priority for the FCA. We expect firms to understand the effects their staff incentives might be having.”