FCA publishes proposals on staff incentives and performance management in consumer credit firms

The FCA took over regulation of consumer credit in April 2014 and over 30,000 firms have been authorised since then. The FCA and its predecessor the Financial Services Authority carried out work and issued guidance on financial incentives across a variety of different firms including banks, insurance companies and investment firms.

The FCA expects all firms to consider the way they pay and incentivise staff, and ensure they manage any potential harm to consumers. The FCA is consulting on a package of rules and guidance to help consumer credit firms identify and manage their risks effectively.

The FCA has published the findings of a piece of thematic work carried out with 98 consumer credit firms.  The FCA found that out of this sample, some firms have inadequate systems and controls to manage the risks of staff incentives. Some firms had not recognised the potential harm to customers that their incentive schemes could pose. For instance, the particular features of bonus calculations or where retailers paid bonuses on the sales of retail goods rather than the associated finance product.

Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations, said:

“The way firms 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.”

The proposed guidance includes examples of different kinds of incentives, how they affect risks to customers, and how firms can control those risks. The FCA is also providing examples of good practice for firms to help them ensure they have robust approaches to risk management.

Notes to editors

1. Consultation paper and findings from thematic review – CP17/20: Staff incentives, remuneration and performance in consumer credit[1]
2. On 1 April 2014, the FCA became responsible for the regulation of consumer credit.
3. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
4. Find out more information about the FCA[2].