FSA publishes incentive guidance

The Financial Services Authority (FSA) has published final guidance to help financial organisations, such as banks, building societies, insurers and investment firms, avoid mis-selling due to incentive schemes.

This includes guidance on managing the risks and governance of incentive schemes, as well as guidance on the features of incentive schemes that can increase the risk of mis-selling. It also provides good and bad examples of incentive schemes.

The guidance applies to organisations that deal with consumers and have sales staff or advisers that are part of an incentive scheme.

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The guidance was first proposed in September 2012 as part of a review by the FSA of 22 financial organisations and their incentive schemes, which found that many such schemes were likely to drive mis-selling and identified the risks if these were not being properly managed.

Martin Wheatley, managing director at the FSA (pictured), said: “Finalising this guidance is important because it gives financial firms a clear idea of what we expect from them and how they should manage their incentive schemes.

“It also marks a key step in changing the culture of viewing consumers as a sales target to somebody to serve.

“I have been encouraged by a number of firms that have already overhauled their reward structures, but I want to see others following suit.”