Banks face mis-selling crackdown

Senior News Reporter

Thursday 6 September 2012

BRITAIN'S banks are facing a major clampdown on the commission payments that have been blamed for fuelling recent mis-selling scandals.

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Alison Campsie

The Financial Services Authority (FSA) said it will look to introduce new rules if the industry does not address the use of incentive schemes, which it said were driving staff to mis-sell products to receive a bonus.

With £9 billion already paid out to compensate customers mis-sold payment protection insurance (PPI), the regulator said a review of incentive schemes at 22 banks, building societies, insurers and investment firms had uncovered a range of serious failings. The FSA found 20 banks used tools that increased the risk of mis-selling, with the risks significant in six cases.Separately, multiple civil actions are being raised in Scotland by small businesses against banks for alleged mis-selling of interest rate swap agreements (IRSAs), which hooked customers into paying unnecessarily high sums on borrowing ahead of plunging rates caused by the financial crash.The regulator said practices included a "first-past-the-post" system where the first 21 sales staff to reach a target could earn a "super bonus" of £10,000.It also found that 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.One bank has been referred to the FSA's enforcement arm for further action, while others have begun checking past sales to see if mis-selling has occurred and if they need to pay compensation.FSA managing director Martin Wheatley said financial institutions have changed their view of consumers from someone to serve to someone to sell to.He 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?"When did this happen? 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."He said that in one recent investigation a firm excessively incentivised one product over another – despite claiming to offer impartial advice – meaning there was a clear risk its advisers would sell the product that earned them more money.Mr Wheatley, who will become chief of the Financial Conduct Authority when it takes control of financial regulation next year, said: "Most of the incentive schemes we looked at were likely to drive people to mis-sell in order to meet targets and receive a bonus, and these risks were not being properly managed."Mr Wheatley said yesterday that cultural change was needed and chief executives were ultimately accountable for the way their staff are incentivised.Poorly managed incentive schemes identified by the FSA included a retrospective accelerator, where passing a target lifted the level of incentive earned for all sales over a period, rather than just those above the target.Sales staff at one firm could see their bonuses multiplied by up to eight times for cross- selling protection products.One bank offered a super bonus scheme where the first 21 people to reach a target earned up to £10,000, with staff potentially moving up wage bands every quarter if they sold enough.Another bank offered an incentive of up to 100% of basic salary for sales of loans and PPI but no bonus would be paid unless staff sold PPI to at least 50% of all customers. The British Banking Association said banks were putting the emphasis back on the customer but incentives still had a role. Chief executive Anthony Browne said: "No-one wants mis-selling: it is not in the interests of customers or banks that people end up with products or services they don't need."

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Banks face mis-selling crackdown

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