July 2017: UK: FCA Consumer Credit Sales Incentives Consultation

The UK’s Financial Conduct Authority (‘FCA’) has today published a consultation paper proposing a new rule and guidance on staff incentives and remuneration for consumer credit firms.

Which firms are in scope?

The consultation covers all firms engaged in consumer credit activity whose staff deal directly with customers.

The consultation does not relate to firms subject to any of the SYSC remuneration codes or firms subject to EEA remuneration provisions such as CRD, AIFMD, the UCITS directive or MiFID.

What is proposed?

The consultation proposes a new section 2.11 within the Consumer Credit sourcebook (CONC) and additional non-Handbook guidance. The new section 2.11 includes:

  • a requirement for firms to put in place adequate arrangements to detect and manage any risk of non-compliance with their regulatory obligations arising from their remuneration or performance management practices.
  • a proportionality provision requiring firms to take into account the nature, scale and complexity of their business, and the nature and range of financial services and activities undertaken in the course of that business, when deciding how to comply.
  • guidance covering the purpose of effective risk management and setting out examples of appropriate risk management is also included.

The consultation also proposes to introduce non-Handbook guidance to further aid consumer credit firms.  This will look at examples of good and bad practice in relation to appropriate incentives, give detailed examples of potential risks, reiterate previous advice and set out expectations relating to the control and governance measures for firms’ staff incentives, remuneration and performance management practices.

Timeline

Responses to the consultation should be sent to the FCA by 4 October 2017.

An online response form can be found here or, alternatively, written responses can be sent to the address provided in the consultation paper.

Tapestry comment:

If your firm engages in consumer credit activity with customer-facing staff this consultation will be relevant.  Most firms will not have to change their sales incentives but some may want to document better or review their governance of sales incentives to make sure that management are aware and responsible for the initiatives their firm has in place. The issues coming to light in the Wells Fargo case show that some firms may need to consider whether this consultation and the likely new rule coming in should prompt a further review.

We are here to help. We work with many financial services businesses in reviewing incentive plans, putting in place new plans and importantly making sure the governance processes are in place and documented in relation to a full range of sales incentives. If you have any questions regarding the new consultation or your wider regulatory and compliance practices, please contact us – we are always happy to help!

Janet, Matthew and Tom

Janet Cooper   Matthew Hunter   Tom Parker

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