FinCoNet’s ‘Report on Sales Incentives and Responsible Lending – A study of the impact of sales incentives on the sale of credit products’ (published in January 2016) sought to provide a holistic view of the role that sales incentives play in responsible lending in relation to the full suite of consumer credit products, with a focus on consumer protection.
This 2016 Report found ample evidence that poorly designed sales incentives can cause harm to consumers, individual firms and the financial system. Such harm can include not only unsuitable sales to individual consumers but also a more general erosion of a consumerfocused culture within individual firms and across an entire sector or industry. The Report highlighted that poorly designed sales incentives are especially prone to cause harm in the case of credit, where the consumer gets the financial benefit of the product up-front (giving rise to particular behavioural risks).
The 2016 Report also found that the nature of incentives for sales staff appears to be relatively uniform across jurisdictions, with the most common type of sales incentives being variable remuneration based on a firm or an individual’s sales performance. It also found few specific rules and standards on sales incentives in place. This uniformity in industry practices across jurisdictions, coupled with the relative absence of specific rules and standards, marks sales incentives as a subject where an international approach is merited and where intervention has the potential to make a significant positive contribution to how credit is sold to consumers.
FinCoNet has developed the enclosed Guidance to Supervisors on the setting of Standards in the field of Sales Incentives and Responsible Lending based on its findings from the 2016 Report, the views of FinCoNet members on those findings and FinCoNet’s consideration of submissions received to a public consultation launched in July 2016.
This Guidance to Supervisors on the setting of Standards in the field of Sales Incentives and Responsible Lending covers the following topics:
a. Appropriate Oversight;
b. Cross-selling;
c. Consumer-focused Culture;
d. General Duties and Specific Responsibilities;
e. Oversight of Different Sales Channels;
f. Firms’ Product Oversight and Governance;
g. Monitoring;
h. Disclosure; and
i. Promotional Incentives to Consumers
This paper also contains a list, as identified by FinCoNet, of the necessary pre-conditions of the overarching regulatory framework, if supervisory initiatives are to be effective in the field of sales incentives and responsible lending.
Through this work, FinCoNet aims to further contribute to the promotion of sound market conduct and strong consumer protection through the efficient and effective conduct supervision of sales incentives and responsible lending.
FinCoNet wishes to thank the members of its Standing Committee 2 on responsible lending for their work in developing this Guidance, as well as those who made submissions to the public consultation. All of these submissions were valuable to FinCoNet in its development of this Guidance.
