Risk to customers from Financial Incentives

 The FCA have carried out a review across a variety of authorised firms, both large and small – including banks, building societies, insurance companies and investment firms, which indicated that most firms are failing to adequately manage the risks of mis-selling arising from the way they incentivise their staff.

Which firms does our guidance apply to?

The FCA Our guidance applies to all firms in retail financial services whose staff deal directly with customers and are paid based on the results. This includes whether they are employed or self-employed, or paid a basic salary or not.

This can include sales staff, advice or service providers, discretionary or non-discretionary investment managers, intermediary firms and firms with appointed representatives.

One example of a financial incentive is where advisers or sales staff has 100% variable pay based on a share of commission or fee income.

What should you do?

The FCA expects all firms to:

Ø  consider if the way you pay staff increases the risk of mis-selling and, if so, how

Ø  review and change where necessary the way you control this risk

You should review the FCA guidance and consider what changes you may need to make to manage the risks in your firm.

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