Martin Wheatley, managing director of the FSA
and CEO designate of the Financial Conduct Authority (FCA), has
highlighted a range of “disturbing findings” following a review of
22 firms’ financial incentive schemes that encompassed insurers,
banks, building societies, and investment firms.

Speaking to an audience of senior bankers,
compliance officers, trade and consumer groups, Martin Wheatley,
managing director of the FSA and CEO designate of the Financial
Conduct Authority (FCA), said:  “Financial institutions have
changed their view of consumers from someone to serve to someone to
sell to.”   

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Cultural change is needed, continued Wheatley
and this change can only come from the top of an organisation.

Wheatley said the FSA, and in future the FCA,
would work with the industry to help it make the necessary changes.
 He also confirmed that he would be taking a lead role in
bringing about these changes.

The UK’s Financial Services Authority (FSA)
has therefore launched an initiative to tackle flawed sales bonuses
that encourage mis-selling.

 

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The FSA said the “disturbing findings” from
its recent research of 22 firms found:

  • Most incentive schemes were likely to drive
    people to mis-sell and these risks were not being properly
    managed;

 

  • Firms failing to identify how incentive
    schemes might encourage staff to mis-sell, suggesting they had not
    properly thought about the risks or simply turned a blind eye to
    them

 

  •  Firms failing to understand their own
    incentive schemes because they were so complex, therefore making it
    harder to control them

 

  • Firms are now expected to consider carefully
    whether they have incentive schemes that increase the risk of
    mis-selling, review whether their governance and controls are
    adequate, and address any inadequacies – including changing the
    scheme where necessary and paying redress to customers that may
    have been mis-sold, according to the FSA.

 

The consultation closes on 31 October 2012 and
the FSA is inviting any firm or person with an opinion on the
management of incentive schemes to provide feedback.

The FSA will be replaced by the Financial
Conduct Authority and Prudential Regulation Authority in 2013.