Britain’s banks face rules to curb mis-selling incentives
Britain’s banks have 18 months to stamp out incentives that encourage the mis-selling of financial products or face “intrusive” action, the Financial Services Authority said yesterday.
UK banks have been hit by a string of scandals in the last 20 years for inappropriate selling of products, such as insurance, home loans and pensions, to customers who often did not need them. Compensation for mis-sold loan insurance alone will cost the banks £9 billion.
Martin Wheatley, the FSA’s managing director, told a Thomson Reuters Newsmaker event it was time to tackle incentives for sales staff as banks were no longer serving customers properly.
“Some time ago, this changed – financial institutions have changed their view of consumers from someone to serve to someone to sell to,” Wheatley said.
Wheatley said banks could no longer expect to make heady returns and should get back to offering “plain vanilla products” that customers can understand.
The FSA has started enforcement action against one company over its sales incentives to stop what he called the “pile it high and sell them cheap” approach seen across the industry.
“If we think in a year to 18 months’ time the industry has not cleaned up its act, then we will revisit it in a much more intrusive way,” Wheatley said. “The question is how intrusive we need to be.”
New rules could make certain that the FSA’s “new, fairer, approach is hard-wired into the way firms do business, and enforceable if they disregard them”.
He said cultural change was needed at the top of firms to tackle poorly designed incentive schemes.