FSA targets bank incentives that lead to mis-sellingWhich? calls for shake-up of banking culture

05 September 2012

outside of bank

Martin Wheatley, managing director of the Financial Services Authority (FSA), has announced that he wants to see an end to mis-selling created by sales incentives.

Mr Wheatley said that poorly designed incentive schemes too often result in customers being sold products they do not need or cannot use, while boosting the earnings of the salesperson.

Which? calls shake-up of banking culture

Richard Lloyd, Which? executive director, said: 'The findings from the FSA confirm our own view that most banks have incentive schemes that prioritise sales over service. This has driven mis-selling and has led to serious failings for consumers. As the FSA themselves say, this must change.

'It is clear that the light touch regulation of the past has not worked. We want to see the FSA rigorously enforcing the rules and taking tough action against those banks that continue to let their customers down.

'Consumers have suffered one banking scandal after another, with the £10 billion mis-selling of payment protection insurance now set to be the biggest financial scandal of all time. There must now be a fundamental shake up of banking culture and a return to banking for customers, not bankers.'

Bank upselling is a key problem

Mr Wheatley said: 'Why is it that every time I walk into the bank to do something simple, like pay my credit card bill, the person behind the counter asks me if I would like to extend my credit, take out more insurance or look at their competitive mortgage rates?

'Banks for me used to be a service - a place where you would go in, stand in a queue, have a pleasant chat with the clerk and go about your daily business. Some time ago, this changed - financial institutions have changed their view of consumers from someone to serve to someone to sell to.'

Mr Wheatley admitted that many, if not all, of the recent mis-selling scandals had dysfunctional incentive schemes at the root of the problems, including the discredited payment protection insurance (PPI).

  • Martin Wheatley has written a guest Which? Conversation post about sales incentive reform. Have your say on the proposed changes.

What sales incentive problems did the FSA review find?

The FSA reviewed 22 firms' financial incentive schemes. The review, which encompassed banks, building societies, insurers and investment firms, uncovered a range of serious failings, including:

  • Most incentive schemes were likely to drive people to mis-sell.
  • Firms failed to identify how incentive schemes might encourage staff to mis-sell, suggesting they had not properly thought about the risks or simply turned a blind eye to them.
  • Firms failed to understand their own incentive schemes because they were so complex.
  • Sales managers had clear conflicts of interests, such as a responsibility to manage the conduct of sales staff whilst themselves able to earn a bonus if their team made more sales.

Specific examples of poor practice included:

  • One firm operated a 'first past the post' system where the first 21 sales staff to reach a target could earn a 'super bonus' of £10,000.
  • 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.
  • One firm allowed sales staff to earn a bonus of 100% of their basic salary for the sale of loans and PPI, but the bonus was only payable to those who had sold PPI to at least half their customers.

More on this...

  • Martin Wheatley calls for bank incentive reform - comment on his Which? Conversation post
  • Complain about mis-sold payment protection insurance - use our free PPI tool to complain
  • How to complain about financial services - our guide to getting redress for poor service or products