Wednesday, September 05 12:11:55
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 today.
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 pounds.
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," Wheatley told Reuters.
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 that boost the earnings of the sales person but "too often result in customers being sold products they do not need or cannot use".
The FSA will attend more bank board meetings and raise its concerns when it meets bank chiefs collectively each quarter to end a "disconnect" between CEOs' willingness to correct shoddy sales practices and the apparent lack of action on the ground.
The FSA was not aiming to ban commission but to put pressure on banks to have the right sales incentives, as piling on prescriptive rules could encourage them to find ways round them, hence the emphasis on cultural change, he added. (C ) Reuters