The UK financial regulator is looking at how to ban incentive schemes for sales staff that are feared to encourage mis-selling of products and services in a move that comes amid continued crackdowns on industry practices.

The Financial Services Authority has published the results of a review which sets out how it expects firms to manage their incentive schemes and gives a strong indication of how, in the future, the Financial Conduct Authority - taking over some of the FSA's roles next year - will expect firms to treat customers fairly.

The proposed guidance applies to all firms that deal with consumers and have sales staff or advisors who are part of an incentive scheme, the FSA has said in a statement.

The FSA's move comes a few months before the wealth management industry must be compliant with the Retail Distribution Review, a move that aims to stamp out the use of trail commissions to advisors and raise professional standards of expertise. The FSA has also recently reiterated its vow to crack down on firms that put clients into products and services it deems to be unsuitable.

End to mis-selling

In terms of the latest initiative, the managing director of the FSA and chief executive officer designate of the FCA, Martin Wheatley, has said he wants to see “an end to mis-selling created by sales incentives”.

“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. [This] marks the start of a programme of work to reduce these risks, which the FCA will take forward. This will involve further supervisory work, a wider review of incentive schemes, enforcement proceedings, and a possible strengthening of our rules,” he said.

The review, which encompassed banks, building societies, insurers, and investment firms, uncovered a range of serious failings. These included firms failing to identify how incentive schemes might encourage staff to mis-sell; firms failing to understand their own incentive schemes because they were so complex; sales managers with clear conflicts of interests, such as a responsibility to manage the conduct of sales staff while themselves able to earn a bonus if their team made more sales; and firms not doing enough to control the risk of mis-selling in face to face situations.

The full review and consultation paper can be seen at here.

The consultation closes on 31 October 2012.