The FCA has fined numerous companies millions of pounds over the years for breaches related to conflict of interest. We have some tips to avoid that mistake.
Key takeaways:
- Educate and empower your team. Continuous training and clear communication around the Code of Conduct are essential. Employees need to fully understand product details, commission structures, and where conflicts could arise to prevent mis‑selling.
- Disclose transparently and appoint customer advocates. Being upfront about any affiliations, commissions, or incentives builds trust. Additionally, assigning dedicated customer champions ensures that clients' interests are always prioritised in product development and distribution processes.
- Align incentives and cultivate the right culture. Remove or redesign remuneration systems that push employees toward biased recommendations. Even small perks can skew behaviour, so use non-material incentives focused on treating customers fairly. Encourage staff to say "no sale" when no product suits, with full support from senior leadership.
Some of the most notable cases of conflicts of interest include the Lloyds incentive scheme, which rewarded employees 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.
UK MiFID Conduct of Business (COBS) 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.
What are ways to avoid customer conflict 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 your 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 the 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?
We offer a range of e-learning courses for the financial services industry, which can be found in our comprehensive FCA Library. These courses are designed to help your staff understand compliance requirements.
Additionally, our Insurance Library contains e-learning content designed to help organisations meet fundamental compliance requirements. If you are looking for focused training, our FCA Handbook Training Package and Insurance Training Package offer complete solutions for your compliance programme. Some of the courses in the libraries include:
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