Posted: 1st August 2017


The paper proposes how consumer credit firms should manage risks related to how they pay and manage the performance of their staff.

In April 2014, the FCA took over the regulation of consumer credit and over 30,000 firms have been authorised since then. Following this, in August 2015, the FCA launched its thematic review into staff remuneration and incentives. The regulator reviewed the incentives and the performance policies and practices for sale and collection staff at 98 consumer credit firms.

It found that some firms have inadequate systems and controls to manage the risks of staff incentives and had not realised the potential harm to customers that their incentive schemes could pose.

The FCA has therefore has placed an onus on firms to detect and manage risks to customers arising from remuneration or performance management practices.

Jonathan Davidson, Executive Director of Supervision, Retail and Authorisations at the FCA, said:

“The way firms pay and manage the performance of their staff is a key driver of culture and customer outcomes, and a continuing priority for the FCA. We expect firms to understand the effects their staff incentives might be having.”

Key Points

The FCA has proposed the following new provisions:

  • A high-level rule requiring firms to have adequate arrangements to identify and manage any risks arising from staff remuneration and performance management practices
  • Firms are required to take a proportionate approach when determining how to do this but they need to consider a range of factors including the nature, scale and complexity of its business, the nature and range of the financial services offered and activities undertaken as part of that business
  • Guidance on the purpose of the new provisions. In particular, the FCA notes that the purpose of the rules and the accompanying handbook guidance is to simplify the application of, and compliance with, PRIN 3 and SYSC 4.1.1R so that risks arising from staff remuneration and incentive policies are identified, monitored and mitigated  

The regulator hopes that the proposed measures will enable a broadly level playing field across the regulated population as there been similar findings identified across other FCA regulated firms.   

Draft non-handbook guidance

This guidance aims to provide a more detailed aid for consumer credit firms and intends to:

  • Provide examples of good and poor practice that the FCA has identified as part of the thematic review; however, the FCA stresses that as business models are variable, these will not be of a ’one-size-fits-all’ nature
  • Reiterate some of the messages and lessons that it identified in previous work in other regulated sectors, supplementing these with consumer credit specific examples
  • Provide more detailed examples of risks that may arise and how these might be addressed
  • Set out the FCA’s expectations of the sort of controls and governance arrangements that it would expect to see firms have in place to identify, understand, manage and mitigate risks relating to staff remuneration and incentives policies and procedures


The proposed new rule and guidance would apply to a firm with respect to its:

  • Credit-related regulated activity
  • Unregulated activity that is financed by a credit agreement for which the firm is carrying on consumer credit lending or broking

The proposals rules would not apply where a firm is already subject to other rules regarding remuneration such as those set out in SYSC 19A – 19F (part of a PRA-regulated banking group), or similar remuneration provision made by an EEA regulator in respect of certain specified EU Directives.

Regulatory next steps

The Consultation closes on the 4th October 2017. The FCA will then consider the feedback and take it into account, and then publish their policy statement with final rules and guidance (no timescale given). The FCA has also provided feedback to those firms included in the thematic review and will conduct further work with some of those firms.

Considerations for firms

The key considerations for firms arising from the consultation paper:

  • They are encouraged to review the consultation paper and identify any practices within their own businesses where improvements may be made – and start preparing their own internal review of their staff incentive schemes
  • It is important that they understand the wider impact of their bonus schemes to ensure they do not cause any undue harm to consumers accessing credit or loans
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