Following a review of the performance management policies and practices for sales and collections staff at 98 consumer credit firms, the Financial Conduct Authority (“FCA”) has published proposals on how consumer credit firms should manage risks related to how they pay and manage the performance of their staff (CP17/20).
In the consultation paper, the FCA sets out its high level findings which, inter alia, include:
- too many firms had high-risk elements in their incentive schemes and had not taken adequate steps to address these risks;
- 40% of the firms in the sample had incentives and performance management controls which posed a high or very high risk of customer detriment;
- firms for which consumer credit was ancillary to their main business had not properly assessed the risks associated with their consumer credit activities;
- particular factors which raised the level of risk include:
- commission accounting for the majority (or all) of customer-facing staff’s pay;
- different rates of commission applying to different (interchangeable) products sold on different terms;
- commission rates varying depending on reaching certain sales targets.
To address these concerns the FCA has proposed a new CONC rule and guidance (CONC 2.11) and new non-Handbook guidance aimed at managing and reducing risks. The FCA does, however, make it expressly clear that it does not and does not intend to prescribe the nature of firms’ incentive schemes or ban pay schemes that reward appropriate sales or collections activities.
The consultation paper can be viewed in full here: CP17/20
The deadline for responses is 4 October 2017.