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Good behaviours and appropriate incentives in consumer credit firms: a new consultation

  • United Kingdom
  • Employment law
  • Financial institutions - Retail finance


The FCA has published a consultation paper CP17/20 on staff incentives, remuneration and performance management in consumer credit firms. Having completed a thematic review of 98 consumer credit firms, the FCA found that some firms have inadequate systems and controls to manage the risks of staff incentives and had not realised the potential harm to customers that their incentive schemes could pose.

The FCA therefore proposes a requirement on firms to detect and manage risks to customers arising from their remuneration or performance management practices. Consultation closes on 4 October 2017.

Who does the consultation apply to?

The consultation applies to firms engaged in consumer credit activity that employ staff who deal directly with customers.

It does not apply to any firm (for example, a firm that is part of a banking group regulated by the Prudential Regulation Authority) that is subject to:

  • any of the remuneration codes in SYSC 19A, 19B, 19C, 19D, 19E, 19F
  • remuneration provisions made under the Capital Requirements Directive, Alternative Investment Fund Managers Directive, Undertakings for Collective Investment in Transferable Securities Directive and the Markets in Financial Instruments Directive

The wider context

The FCA recognises that firms may want to incentivise their staff to achieve better results but believes that steps should be taken to ensure that any resulting risks are adequately identified and managed. In its 2015/16 Business Plan, the FCA explained that improvements in incentives were necessary to ensure that markets worked well and that it would review incentives in consumer credit firms.

In July 2015 it published guidance in FG15/10 ‘Risks to customers from performance management at firms’, which applies to all retail finance firms, including consumer credit firms.

What were the thematic review’s findings?

Whilst many firms had taken positive steps in the way they reward and incentivise staff, too many of the firms in the sample had high-risk elements in their incentive schemes. These risks arose primarily where staff earned bonus or commission payments based on the volume or value of sales or collections. Too often, the sample firms with high-risk elements did not have sufficient controls to address these particular risks. The firms that posed the highest risk were typically those where:

  • incentive and performance management schemes included multiple high-risk elements
  • control arrangements had material weaknesses and did not adequately address the specific risks posed by the incentive and performance management schemes
  • there was a lack of recognition among senior management about the risks that their incentive schemes could pose

FCA proposals for a new rule and guidance

The FCA proposes to insert provisions into a new section 2.11 of the Consumer Credit sourcebook to provide:

  • a high-level rule requiring firms to put in place adequate arrangements to detect and manage any risk of non-compliance with their regulatory obligations arising from their remuneration or performance management practices
  • a proportionality provision requiring a firm to take into account the nature, scale and complexity of its business and the nature and range of financial services and activities, when deciding how to comply
  • guidance on the purpose of the proposed new provisions

Non-handbook guidance

The FCA proposes new non-handbook guidance setting out examples of good and poor practice, reiterating some messages from earlier guidance and setting out its expectations on the types of controls and governance firms should have in place.

The FCA anticipates that there may be a risk that firms may remove bonus schemes that incentivise good conduct that is in the interest of consumers. However, it intends that its communications and engagement with firms will emphasise that firms should detect and manage the risks arising from staff incentive schemes and that it does not prescribe the nature of incentive schemes or ban pay schemes that reward appropriate activity.

Read the consultation here

For more information contact

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