FCA warns consumer credit firms of staff incentive risks

FCA research found that out of a sample of 98 firms, some had "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.

The FCA says it expects all firms to "consider the way they pay and incentivise staff", ensuring they manage any potential harm to consumers.

It is now consulting on a package of rules and guidance to help consumer credit firms identify and manage their risks effectively.

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.

The FCA took over regulation of consumer credit in April 2014 and over 30,000 firms have been authorised since then.

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.”