The FCA's Expectations for Remuneration in the Consumer Credit Sector
With less than a month to go to Christmas and New Year, many employers will be looking to reward staff that have worked hard in very difficult circumstances. The temptation to offer high rewards for work that generates more profit is strong, but the FCA has clear expectations when it comes to the types of incentive schemes and remuneration for staff in the consumer credit sector. The FCA does not prohibit certain types of incentive schemes, but there is a rule that incentives must never be at the customer’s expense.
The rule in CONC – 2.11.4R – sets out that firms must be aware of potential risks of harm to consumers from their remuneration or incentive practices, and must have processes in place to detect this risk, and then manage it. In particular, the rule is designed to guard against incentivising staff to promote products which will result in gains for the staff member when this is not in the customer’s best interests.
In practice, this rule means regular reviews of incentive schemes, the risks they might pose, and whether controls are effective. This means that good management information is needed, that goes beyond the basic, and collects adequate amounts and types of information to be able to understand these factors. At a minimum, it should cover the identification of staff who are achieving high sales or collections volumes, and for which products or customers. There should be an analysis of sales/collection activity patterns, and the effect of promotions or campaigns should be assessed. MI should also ensure that indicators of inappropriate behaviour such as omitting key information, pressuring tactics, making recommendations when this is not appropriate, are caught.
Similarly the analysis - and the board - must be able to identify when trends in MI might indicate mis-selling. To meet the FCA’s requirement, MI must be linked to the specific features of the scheme, rather than simply relying on routine monitoring activities.
Take sales calls as an example. The MI should be detailed enough to show a meaningful picture - it isn’t just about whether key features of the product or service are covered with the customer before purchase, but about whether they’re presented in such a way that the customer understands what they’re getting. If staff are skipping some of the information at specific, regular points of the month, these patterns should be investigated to find out whether there are any links to the organisation of an incentive scheme. This could be a clear indicator that the scheme is likely to be encouraging customer harms.
Customer complaints about not receiving the expected service can also be monitored to highlight whether this is what’s happening, linking the complaint to the sale tactic.
The complexity of the scheme is another area for review – overly complicated schemes can be difficult to understand and control. The scheme itself should be simple to understand at every level and written in plain language.
Reviews should also cover conflicts of interest – managers should not be put in the position of earning incentives or a bonus based on the volume of sales their staff make. This can create a situation where the manager will personally benefit from high numbers of sales, but might benefit less from practices that ensure good customer outcomes.
Building quality into incentive schemes is a good start, but the monitoring must show that this works effectively, mapping what good customer outcomes look like and showing clear links between the quality targets and both meeting good outcomes, and ensuring there are no resulting harms. The use of mystery shoppers is one method that could support a scheme analysis.
Reviews can also be designed to more comprehensively cover the riskiest areas, whether by type of product sold, or whether the customer is vulnerable or in financial difficulties.
Finally, effective controls should be used to discourage poor practices. There is a risk with some monitoring methods that staff may be aware that they won’t be under scrutiny for the rest of the month, particularly where they know how many checks will be carried out, and whether these checks have already been undertaken. If team X are checked five times in one month, and staff member A has received five pieces of feedback by the 20th, then they’ll likely know that they won’t be checked again for the remainder of that month. Provision of feedback should be considered – it might be appropriate to provide weekly regular feedback so that individuals don’t consciously or unconsciously pick up on patterns.
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