Regulator may toughen rules based on findings
The Financial Conduct Authority (FCA) has started assessing financial firms’ response to its guidance on incentives to sales staff.
According to documents seen by Insurance Times, the regulator may toughen its rules on incentives if the assessment shows companies are not properly managing the risks to customers from sales staff bonuses.
Both brokers and insurers typically structure sales staff bonuses on the volume of sales.
Under the assessment, the FCA is requiring a sample of financial services firms to complete online questionnaires relating to the incentives they pay sales staff who deal with retail customers.
The assessment has two parts: an initial assessment, followed by a fuller one if the initial questions determine that this is needed. Firms have one week to complete the initial assessment and four weeks for the full assessment.
The assessment is a follow-up to the final guidance the FSA, the FCA’s predecessor, issued in January this year on financial incentives for sales staff. The regulator is concerned that the incentives create mis-selling risks because they encourage staff to focus more on hitting incentive targets than serving the customer.
An initial review of financial incentives conducted in 2011 and 2012 found that “most firms were not managing these risks adequately, which led us to issue guidance to help firms”, the FCA document said.
“We said we would follow up with firms to assess what they have done in response to that work. That is the work we are now carrying out. We want to assess whether firms are now managing the risk of mis-selling resulting from financial incentives effectively.”
It added: “If we find firms are not managing these risks adequately, we are open minded to consider strengthening our rules.”
The probe of sales staff is one of many FCA reviews that are affecting the insurance industry.
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