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Crackdown warning over mis-selling
A review of incentive schemes at 22 banks, building societies, insurers and investment firms uncovered a range of serious failings, the FSA said
Britain's banks are facing a major clampdown on the commission payments that have been blamed for fuelling recent mis-selling scandals.
The Financial Services Authority (FSA) said it will look to introduce new rules if the sector does not address the use of incentive schemes, which it said were driving staff to mis-sell products to receive a bonus.
With the industry already paying out £9 billion in redress to customers mis-sold payment protection insurance (PPI), the regulator said a review of incentive schemes at 22 banks, building societies, insurers and investment firms had uncovered a range of serious failings.
One firm has been referred to the FSA's enforcement arm for further action while others have begun checking past sales to see if mis-selling has occurred and if they need to pay compensation.
The regulator said practices included a "first past the post" system where the first 21 sales staff to reach a target could earn a "super bonus" of £10,000.
And it found that basic salaries for sales staff at one firm could move up or down by more than £10,000 per year, depending on how much they sold.
Another firm excessively incentivised one product over another - despite claiming to offer impartial advice - meaning there was a clear risk that its advisers would sell the product that earned them more money.
FSA managing director Martin Wheatley, who will become chief of the Financial Conduct Authority when it takes control of financial regulation next year, said: "What we found is not pretty. Most of the incentive schemes we looked at were likely to drive people to mis-sell in order to meet targets and receive a bonus, and these risks were not being properly managed."
In a speech to senior bankers, compliance officers and trade groups, Mr Wheatley said cultural change was needed and chief executives were ultimately accountable for the way their staff are incentivised. He added that many of the recent mis-selling scandals had "dysfunctional incentive schemes" at the root of their problems, with PPI being the main one.
The British Bankers' Association (BBA) said it will now work with its members over a response to the consultation paper. In a statement, the BBA said its members were putting the emphasis back on customers with a range of individual initiatives and products.
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And rightly so. As someone with a bit of background knowledge of how the bans opperate, the need of the customer is way down on the list of priority as it's all about sales targets!!
I must admit, it really winds me up that most people see banks as this superior financial institution that can be relied upon to look after its customers above all else, whereas the reality is they don't give a monkeys.
The only way you can be certain of getting truly independent advice is to see an Independent Financial Adviser with access to the whole market. A good one should offer advice and solutions not product sales.
Financial Institutions have been incentivising sales staff based on commission levels for decades.
If finacial rewards are there for hitting/exceeding targets and there is pressure on a sales person's job if said targets are not met, then it doesn't take a genius (or the vastly over paid and ineffective FSA) to work out that miss selling is bound to take place!!
Clearly the massive fines of the past, whilst they boost the coffers and fund the high salaries at the Financial Services Authority) have had no impact on Banks and their practices.
What should happen when a Financial Institution is found guilty of systematic misselling is: as well as a significant fine, those responsible should be sacked and struck off the various regulatory/authorisation registers. The Bank itself it should then have its licence/authority to sell such products revoked permanently.
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