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Peer2Peer Finance News | July 21, 2017

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City watchdog clamps down on consumer credit pay incentives

City watchdog clamps down on consumer credit pay incentives
Marc Shoffman

THE FINANCIAL Conduct Authority (FCA) is the latest regulator to take action on consumer credit by consulting on new rules on staff sales incentives.

The City watchdog has expressed concern at how consumer credit firms are managing risks related to how they pay and manage the performance of their staff.

The FCA has proposed introducing rules for consumer credit firms to ensure that any bonus schemes don’t cause undue harm to consumers accessing credit or loans.

Read more: Savers urged to look for cash alternatives as inflation hits new high

A spokesman said this would also apply to peer-to-peer lenders regulated in the consumer credit space.

As part of the consultation, the regulator reviewed incentives and performance management policies and practices for sales and collection staff at 98 consumer credit firms, finding 40 per cent of the sample had procedures that posed a high, or very high, risk of customer detriment.

“The way firms pay and manage the performance of their staff is a key driver of culture and customer outcomes, and a continuing priority for the FCA,” Jonathan Davidson, executive director of supervision, retail and authorisations, said.

“We expect firms to understand the effects their staff incentives might be having.”

The consultation closes on October 4 2017.

The clampdown comes as the Bank of England has expressed concerns about the boom in consumer credit by increasing capital that banks must set aside for losses.

“We note with interest the FCA’s proposals on staff remuneration and incentives in consumer credit firms, which is an issue of growing significance,” Michael Todt, content manager at Lending Works, told Peer2Peer Finance News.

“Our team members are compensated based not only on measures of financial performance, but also our unique values-focused criteria, which we expect each employee to embody.

“One of our core values as a company is to deliver ‘win, win, win’, which is underpinned by the necessity to be fair to the customer, our employees and Lending Works.

The FCA’s latest proposals resonate with this, as staff cannot be excessively remunerated if it is unfairly at the expense of the customer. A more equitable share of the benefits between all parties within financial services is thus something we will always champion.”

Read more: FCA applications have cost the sector up to £2m