FCA consults on consumer credit staff incentives

FCA is consulting on how consumer credit firms should manage the risks inherent in staff remuneration and performance management.  It has previously issued guidance covering firms in different sectors within SYSC 19, but there is no current equivalent for consumer credit firms. FCA has carried out a thematic review of 98 firms and found evidence of inadequate systems and controls to manage these risks. It said some firms had not recognised how their incentive schemes could harm customers. FCA’s draft guidance gives examples of how different types of incentive could affect customers, and what firms can do to control them, with examples of good and bad practice.

FCA found evidence of a number of practices that incentivised sales, especially where credit activities were ancillary to the main business of the firm. 88% of the firms surveyed paid some form of variable remuneration, and 15 of the firms paid staff on a 100% commission basis.

FCA proposes a new section 2.11 in CONC to require firms to put in place adequate (but proportionate) arrangements to detect and manage and risk of non-compliance arising from their remuneration or performance management practices. FCA will tie this rule, and its guidance, into the expectations already set out in PRIN 3 and SYSC 4. The rule and guidance will apply to any credit-related regulated activity and any unregulated activity financed by a credit agreement for which the firm is carrying on consumer credit lending or broking. The guidance contains many examples of when practices present increased risks as well as outlining good and poor practices.

Consultation closes on 4 October and FCA plans to finalise the new rules and guidance in early 2018.