Banks’ bonuses reward ‘risky sales tactics’, says Central Bank

Banks’ and finance companies’ staff bonus schemes are continuing to reward aggressive and risky sales practices, according to a new report by the industry’s watchdog.

The Central Bank will publish new guidelines today for the bonuses used to reward sales staff in banks, insurance companies and investment firms in preparation for a clampdown on poor selling practices next year.

According to the report, a review of existing practices in financial services found that the incentives used to reward sales staff emphasises quantity over quality.

The review found that a greater emphasis was placed on “rewarding higher amounts of sales than achieving suitable customer outcomes” while bonuses depended fully or largely on volumes and hitting targets.

At the same time, there was little in the way of penalties or deterrents against poor sales practices while companies did not carry out consistent quality monitoring.

The report states that each bonus scheme reviewed had the potential to encourage poor sales behaviours in staff, as there were no meaningful incentives for quality.

Bonus systems The guidelines published today demand that financial services firms change their bonus systems by January 1st next year to reward sales people who act in their customers’ best interests, provide them with suitable products and focus on quality and compliance.

The Central Bank warned that companies’ chairmen and boards are ultimately responsible for bonus schemes. It wants the industry to introduce new systems next year and will require firms’ internal auditors review these in 2016.