LONDON (Reuters) - The way British banks reward their sales staff has encouraged mis-selling of products to customers, and reforming the rules won’t work without cultural change at the top, Britain’s financial regulator will say on Wednesday.
UK banks have been hit by a series of scandals for more than 20 years over sales of unsuitable products, ranging from home loans to pensions, to customers who often did not need them. Compensation for mis-sold loan insurance alone will cost the banks nine billion pounds.
As part of wider efforts to get a better deal for customers, the Financial Services Authority will publish on Wednesday a review of how sales staff are rewarded.
FSA managing director Martin Wheatley will say that the review has uncovered “serious failings”, with several types of sales practices making mis-selling inevitable, the FSA said in an advance notification of his speech.
Some of the reward schemes will have to be changed but there must also be a fundamental shift in culture at the top of banks to make such reforms work, Wheatley will say in the speech, due to be delivered at the London offices of Thomson Reuters at 9 am (0800 GMT).
Banks have been accused of an aggressive sales culture where staff under pressure to hit targets fell short of their obligation under FSA rules to provide “clear, fair and not misleading” information about their products.
The FSA has already shown its teeth in changing culture at the banks. Chairman Adair Turner helped to force the resignation of Barclays chief executive Bob Diamond in July, saying he was not the right person to bring about a cultural change after the bank admitted rigging a global interest rate.
Wheatley’s review of rewards for sales staff is part of a wider push to make banks, insurers and investment firms sell products to people on the basis of their suitability, and not how much profit they bring in.
The FSA will be scrapped next year and replaced with a Financial Conduct Authority, headed by Wheatley, with a remit to protect customers. It will have powers to ban products and intervene earlier in their design to avoid people being ripped off.
Reporting by Huw Jones; editing by David Stamp