FinCoNet, the International Financial Consumer Protection Organisation, has published its Report on Sales Incentives and Responsible Lending, outlining key findings on the topic.
It is no real surprise that sales incentives are a key driver of both culture and behaviour towards consumers. Key findings of the report include:
- There is ample evidence that poorly designed sales incentives can cause harm to consumers, individual firms and the financial system
- The nature of sales incentives and the issues they cause are relatively uniform across jurisdictions
- There are few specific rules or standards related to sales incentives, nationally or internationally
- The impact of sales incentive practices crosses industry sectors and national boundaries, requiring a holistic and international approach
Sales incentives and responsible lending should be a key issue for the Board. As it is, the level of fines and redress in the UK and other jurisdictions has been very significant. With the introduction of the Senior Manager Regime in March 2016, there is an even greater impetus on Boards to ensure good governance for both product design and sales incentives.
Key considerations should include:
- The customer’s view: Do we know (independently) what our customers accept and expect, both now and in the future?
- Product Design: Did the business involve risk and compliance managers early on and have they considered the entire lifecycle of a product/relationship, not just point-of-sale?
- Incentives: Does profit take care of itself when we do right by our customers?
- Employee Intuition: Do our products and incentives pass the friends and family test?
- Customer complaints: How many products and/or incentives changed as a consequence of customer or employee feedback? How does the firm use rewards and sanctions?
- Culture: Does the Board set the tone in terms of what is acceptable? Do our products, services and/or incentives reflect espoused values and deliver good customer outcomes?
- Behavioural Risk: Who on the Board has the primary task of focusing on behavioural risk exposures? How does the Board hold managers to account?
For further information on Behavioural Regulation, Conduct Risk and the Senior Managers Regime, please contact BRG.
Tony Moroney leads the Governance, Risk Culture and Conduct Risk practice within BRG’s International Financial Services practice.