In August 2015, the FCA launched its Thematic Review: Staff remuneration and incentives. The FCA reviewed the incentives and the performance management policies and practices for sales and collection staff at 98 consumer credit firms. Following the results, the FCA found that a significant proportion of firms had:
- high risk financial incentives and/or performance management practices likely to encourage high-pressure sales or collections;
- inadequate or ineffective controls; and/or
- a lack of appreciation of the risks their incentives posed and the controls needed to address them.
The FCA has now published Consultation Paper 17/20: Staff incentives, remuneration and performance management in consumer credit – findings from the FCA thematic review and proposed new rule and guidance (CP17/20). The purpose of CP17/20 is to address concerns about how consumer credit firms pay and incentivise their staff and manage the risks arising from these arrangements. CP17/20 affects firms that are engaged in consumer credit activity that have staff who deal directly with customers and are not subject to any of the existing remuneration codes in the Senior Management Arrangements, Systems and Controls sourcebook (SYSC), that is SYSC 19A to SYSC 19F.
The FCA is consulting in Chapter 3 of CP17/20, on proposed new rules and guidance in the Consumer Credit sourcebook (CONC) and non-Handbook guidance designed to help consumer credit firms:
- identify and appreciate the risks their practices might pose to customer outcomes;
- communicate its expectations regarding how firms should mitigate/control those risks as required by SYSC; and
- establish a level playing field between consumer credit firms and other Financial Services and Markets Act regulated firms to which previous guidance applies.
The proposed rules are set out in the draft Consumer Credit (Staff Incentives, Remuneration and Performance Management) Instrument 2017 (Appendix 1), with the non-Handbook guidance set out in the Draft non-Handbook guidance relating to staff incentives, remuneration and performance management in consumer credit (Appendix 2).
In terms of ongoing work, the FCA expects to publish:
- a feedback statement in the summer following its Call for Input on High-Cost Credit, including a review of the high-cost short-term credit price cap;
- a consultation paper proposing some changes to its requirements on assessing creditworthiness, including affordability, to clarify its expectations of firms and promote responsible lending; and
- a summary of the responses and outline the scope of the review following the responses to the Call for Input on the planning phase of the review of retained provisions of the Consumer Credit Act 1974.
The deadline for comments to CP17/20 is 4 October 2017. The FCA intends to publish a policy statement with final rules and guidance after the feedback is considered.