The Lloyds incentive scheme, rewarded for selling thousands of products to customers regardless of whether or not those products were in their best interest.
Staff members were threatened with demotion and were under so much pressure to hit targets that some even bought products themselves or sold them to family members.
MiFID II prohibits firms from remunerating or assessing their performance in ways that conflict with clients' best interests or incentivise them to sell certain products or services.
5 Steps to take to avoid conflicts of interest
- Provide information and training - take every opportunity to remind product distributors (advisers) of your Code of Conduct rules and help them understand why they are important. Proper training and knowledge of your products, services and financial instruments can prevent misselling.
- Make appropriate disclosures up front - be sure to give customers clear, fair and not misleading information in a durable format about your connections and relationships with issuers and providers, about commission and charges, etc in line with your firms' policies. Disclosures are vital and ultimately help customers decide whether something is right for them.
- Have specially appointed customer champions - whose priority is to speak up for customers, champion their needs, and look at the impact of products, changes, and developments on clients? Who can vouch for them and ensure their views are always taken into account, at every stage and every process.
- Carefully check all our remuneration, performance targets, benefits and incentive schemes - to ensure there are no incentives, performance targets or other conflicts that may cause you to recommend certain products when others are more suitable, or encourage you to act in ways that are not in the customers' best interests. Remember, even minor incentives (such as a free bottle of Champagne) may be enough to give a perception that profits and sales are more important than client needs. Where possible, always use non-material incentives to reward performance. Look for other ways of shifting the focus to customer care - e.g. a monthly TCF Champion - for those delivering exceptional service or commitment to customers.
- Change the culture - you can do this by making it more acceptable for staff NOT to sell in certain circumstances (if no products or services are suitable, if no information on suitability exists, etc) despite the obvious temptation. Reassure them that they won't face disciplinary action as a result, and remember to get senior managers to endorse this too.
Want to learn more about FCA Compliance?
If you'd like to stay up to date with FCA best practices, industry insights and key trends across regulatory compliance, digital learning, EdTech and RegTech news, subscribe to the Skillcast Compliance Bulletin.
To help you navigate the compliance landscape we have collated searchable glossaries of key terms and definitions across complex topics including Equality, Financial Crime, GDPR and SMCR. We also regularly report key learnings from recent FCA fines.
You can follow our ongoing YouGov research into compliance issues, attitudes and risk perceptions in the UK workplace through our Compliance Insights blogs.
And if you're looking for a compliance training solution, why not visit our FCA Compliance Course Library?.
Last but not least, we have 60+ free compliance training aids, including assessments, best practice guides, checklists, desk-aids, eBooks, games, handouts, posters, training presentations and even e-learning modules!
If you've any questions or concerns about compliance or e-learning, please get in touch.
We are happy to help!