The commission-led sale of financial products is set to be outlawed across the industry under major plans to be announced tomorrow by the boss of the new City watchdog.
The Financial Services Authority (FSA) has already banned commission payments to advisers under the Retail Distribution Review (RDR), which comes into force on 31 December.
But Martin Wheatley – who will become chief of the Financial Conduct Authority (FCA) when it takes control of financial regulation next spring – intends to widen the clampdown on commissions to all financial products, not just investment-related sales.
The former Hong Kong regulator – who became managing director of the FSA last year – plans to use his first major speech to the City tomorrow morning to set out an important marker to financial firms.
He wants to demonstrate to finance firms that a line has been drawn between the former light-touch regulation of the last decade and the new, tougher line that the FCA will adopt.
Mr Wheatley will admit that the existing regulatory regime has let consumers down. However, he will stop short of blaming the FSA for the wide-scale scandals of recent years, including payment protection insurance (PPI) mis-selling, which has so far cost banks £10bn in compensation.
He intends to make sure that such rampant mis-selling by commission-hungry sales staff cannot happen again and will warn banks, insurers and building societies, as well as investment firms, that they must play ball with the new regulator and remove commissions from the centre of their sales culture.
The City watchdog will also publish tomorrow the details of its latest review into the way financial companies reward sales staff. The review will reveal major shortcomings in how commission is paid and explain why they can lead directly to mis-selling, as happened in the case of PPI.
Mr Wheatley's plans will be the first step in the introduction of tough, new rules which will affect the sale of insurance policies, mortgages, as well as more basic financial products such as current accounts and credit cards.
He will tell the industry that almost all financial mis-selling scandals in the last two decades have been caused by commission payments.
However, the new crackdown –which could take years to enact, bearing in mind that RDR took six years' work – will not ban commission altogether. Instead it will allow schemes that meet certain restrictions.
Mr Wheatley will demand that any incentive scheme must have the consumer's needs at its heart. That's the opposite of the existing process where financial sales staff are rewarded for the number of products they shift, irrespective of whether they have sold consumers the right financial deal.
The changes will force most mainstream firms to rethink their whole marketing systems but, in the process, should reward those who put the consumer at the heart of their business. Those that don't will face a huge battle with the new regulator, Mr Wheatley will warn.Reuse content