On 27 March 2018, the FCA published a Policy Statement (PS18/7) on staff incentives, remuneration and performance management in consumer credit firms. The Appendix to the Policy Statement contained the text of a legal instrument implementing the proposed changes which comes into force on 1 October 2018. The FCA also published the Finalised Guidance (FG18/2) to elaborate further on the new rules and help firms comply with them.
Policy statement
This publication follows a thematic review announced by the FCA in 2015. Informed by its findings, the FCA took a view that the “consumer credit firms needed more clarity regarding [its] expectations and to improve how they identify and manage the risks their staff incentives may pose to customers” and consulted on the proposed rules (in CP17/20) in July 2017. The Policy Statement published in March summarises the feedback received by the FCA and sets out the regulator’s response. The FCA noted that the large majority of the 13 respondents supported the proposals and therefore, only minor amendments were made to the rules and guidance.
The primary focus of the new rules was to secure an appropriate level of consumer protection, and the specific proposals were designed to:
- help consumer credit firms identify the risks their practices might pose to customer outcomes;
- explain the FCA’s expectations of how firms should mitigate and control those risks; and
- establish a level playing field between consumer credit firms and other Financial Services and Markets Act 2000 regulated firms to which previous guidance applies.
The legal instrument included in the Policy Statement also references the finalised guidance and states that the firms should be aware of it.
Finalised guidance
Alongside the Policy Statement, the FCA released a document containing the non-Handbook guidance for consumer credit firms. It sets out the FCA’s expectations in relation to the identification, monitoring and reporting of risks by the relevant firms. The document lists and provides examples of incentive scheme features that can increase and reduce the risk of consumer harm. It also describes performance management practices which may either increase or reduce the risk of customer harm. The final section provides guidance on how to manage the risks arising from incentive schemes and performance management and provides examples of good and poor practices.
The affected firms must ensure compliance with the new rules by 1 October 2018, and the Finalised Guidance is designed to support their implementation.
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