The FCA has revealed proposals on how consumer credit firms should manage risks related to how they pay and manage the performance of their staff.

The FCA recently carried out a study with 98 consumer credit firms and found that from this sample some firms have inadequate systems and controls to manage the risks of staff incentives.

Some firms had not recognised the potential harm to their customers that the incentive schemes could pose.

An example of this was the particular features of bonus calculations or when retailers paid bonuses on the sale of retail goods rather than the associated finance product.

The FCA – which took over the regulation of consumer credit on 1st April 2014 – and its predecessor the Financial Services Authority (FSA) have carried out work and issued guidance on financial incentives across various firms, including banks, insurance companies and investment firms.

The FCA is currently working on a package of rules and guidance to help consumer credit firms identify and manage their risks effectively.

The proposed guidance includes examples of different kinds of incentives, how they affect risks to customers and how firms can control those risks.

The FCA is also providing examples of good practice for firms to help them ensure they have robust approaches to risk management.

Jonathan Davidson, executive director of Supervision – Retail and Authorisations, 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.”