All major retail banks have either replaced or made substantial changes to their financial incentive schemes, according to the Financial Conduct Authority (FCA).
The City watchdog’s latest review of financial incentive schemes found significant improvements at many UK banks, but adds that further work is needed.
For example, the FCA has identified a number of areas on which firms should concentrate to better manage bonus schemes, in particular:
- Recognising that remuneration that is effectively 100% variable pay based on sales increases the risk of mis-selling and managing this risk.
- Managing the risks in discretionary incentive schemes and balanced scorecards, including the risk that discretion could be misused.
- Checking for spikes or trends in the sales patterns of individuals to identify areas of increased risk.
- Doing more to monitor poor behaviour in face-to-face sales conversations.
- Monitoring non-advised sales to ensure staff who are incentivised to sell do not give personal recommendations.
- Improving oversight of incentives used by appointed representatives.
The FCA says it is committed to further work on bonuses for retail banks’ sales staff.
In addition to its supervision teams maintaining their focus on this issue as part of understanding how organisations are changing their culture, it will undertake further thematic work on organisations’ performance management approaches.
Martin Wheatley (pictured), chief executive of the FCA, said: “Eighteen months ago we gave the industry a wake-up call and it recognised that a poor incentive culture had helped push bad sales practice, which led to mis-selling.
“We’ve seen some good progress, but it is going to take time to see whether the changes that organisations have made to incentive schemes and their controls stick, and whether good beginnings are part of genuine cultural change.”
The FCA finalised its guidance on financial incentives in January 2013, when it was still known as the Financial Services Authority.
It has since been working with the industry, with most large and medium-sized organisations committing to further improvements following the review.