The focus of this proposed guidance is on the risks that are posed to consumers by inappropriate practices.
This guidance is relevant to all firms with staff who deal directly with retail customers.
Guidance Consultation 15/1 [PDF][1]
Background to this consultation
The culture of a firm is important in ensuring customers are at the heart of how a business is run. A key driver of culture is how people are rewarded and the behaviours that are valued and recognised by the firm. They way in which staff are incentivised and their performance is managed plays a key role in this.
We have previously reported on the risks from financial incentives, recognising the positive progress we have seen and the significant changes made to firms’ financial incentive structures as a result. We have also highlighted the importance of ensuring that this progress is not undermined by other performance management practices.
We have taken a forward looking approach to our work on performance management and this report aims to help firms improve practices in this area, where needed. Our focus is on the risks that are posed to consumers by inappropriate practices.
Who should read this?
- All firms who deal directly with retail customers
- Trade associations
The report may also be of interest to consumer bodies.
Findings
We have seen an increase in the level of intelligence about poor performance management practices in sales areas. We have not identified evidence of widespread issues, but we have identified instances of poor practice through our follow-up work on whistleblowing reports. As well as addressing these issues, we have engaged with a number of firms to discuss their approach to performance management. We have not undertaken a programme of direct assessments of how firms manage performance.
Despite the benefits of good performance management, there will always be an inherent risk that poorly executed performance management can encourage or drive mis-selling because of pressure to meet targets and/or corporate objectives. Whilst some pressure is not unexpected, an undue level of pressure is likely to further increase the risk to customers.
Middle managers are particularly likely to have to manage conflicts of interest, where they often have to balance their objectives linked to sales results with other objectives, such as the way products are being sold.
It is not our role to prescribe how firms manage the performance of their staff, but we expect firms to manage the risk of mis-selling effectively. We are consulting on guidance to help firms manage the risks in this area, including identifying where poor performance management practice may be leading to undue pressure.
This proposed guidance relates to the following rules in the FCA Handbook:
- Principle 3 of the FCA Principles for Businesses and the applicable rules in SYSC, which sets out organisational and systems and controls requirements for firms.
Cost benefit analysis
A CBA is not included in this consultation as the proposed guidance follows predictably from existing rules and would not be expected to impose material new costs on businesses.
Next steps
All firms should consider:
- how their approach to performance management may increase the risk of mis-selling
- whether their governance and controls are adequate, and
- take action where required to ensure the risks are adequately managed
Within the report we highlight good and poor practice. We are consulting on draft guidance to help firms comply with existing rules and principles in managing the risk of mis-selling from poor performance management.
We invite your views on our thematic review and proposed guidance to firms.
Please respond by 15 May 2015.
Please email your responses to: [email protected] or send your responses to:
Mark Mulford
Incentives Team
Specialist Supervision Division
Financial Conduct Authority
25 The North Colonnade
London E14 5HS
Telephone: 020 7066 4202
More information
- In March 2014, we published our thematic report into financial incentives[2], which assesses whether firms were managing the risks to consumers.
- How we handle disclosures from whistleblowers[3]
- Final guidance FSA13/1: Risks to customers from financial incentives[4]