A further example of the new regulatory approach of being prepared to intervene at an earlier stage (see the article on unregulated collective investment schemes in Regulatory Roundup 43) was evidenced by the release of consultative guidance on ‘Risks to customers from financial incentives’.
Despite the TCF initiative, there is concern that financial incentive schemes for staff can be a key-driver of mis-selling. The FSA conducted a review of 22 authorised firms between September 2010 and September 2011 and found that no less than 20 of those firms had incentive schemes in place that increased the risk of mis-selling (and one of those firms has been referred to the regulator’s Enforcement and Financial Crime Division).
There are some horror stories in chapter 3 of the guidance combined with examples of good and poor practice.
Although the guidance is primarily aimed at all firms in retail financial services, we are advised on page 6 of the document that wholesale firms with individual incentive schemes will also need to consider the relevance of the guidance.
The ‘conclusion and next steps’ section warns firm that this is not a one-off but rather “the start of a programme of work … which will be taken forward by the Financial Conduct Authority”.
Responses are invited by 31 October.
