Wheatley moved back to the UK after a five-year tenure at Hong Kong’s main regulator the Securities and Futures Commission in June last year to become head of the CBU. He is due to take up the role of chief executive of a new regulatory body, the Financial Conduct Authority (FCA), in March next year.
Wheatley is well known for his consumer-focused stance in relation to the behaviour of banks and other financial institutions and was responsible for pushing through reforms in Hong Kong, particularly after the collapse of Lehman Brothers which left many consumers with worthless mini-bonds linked to the bank.
In a speech delivered last night, Wheatley said poorly designed incentive schemes are a “universal problem across many industries” but suggested that in financial services they could be far more damaging to the consumer than anywhere else.
Product pushers
“….the lack of trust and confidence is amplified each time that someone working for a bank, insurer, or investment firm sells products predominantly driven by financial incentives for themselves and profit for their firms, rather than the needs of their customers,” he said.
“And while public attention has been on the huge rewards on offer to the few, the effect of more modest rewards on the many needs to be dealt with. We need to deal with how incentives and bonuses are used by firms across financial services to drive sales, and the knock-on effect this has on their customers.”
The speech coincides with the CBU’s publication of a report showing findings from a review of 22 firms “of all sizes, including high street banks, building societies, insurance companies and investment firms”.
Wheatley said what the CBU found in its review “is not pretty” and added that “most of the incentive schemes we looked at were likely to drive people to mis-sell to meet targets and receive a bonus, and these risks were not being properly managed”.
In an indication of how serious Wheatley intends to take the issue, he assured “personal involvement” with driving change forward and threatened that the FCA, when in business from next March, will be introducing “pre-emptive regulation” to tackle it.
The FCA is one half of a new twin peak model of regulation designed by the UK’s coalition government in response to the financial crisis. The other half is the Prudential Regulatory Authority (PRA).
Before the introduction of the new model in March 2013, the FSA has set up two distinct business units which will mirror the work of the new organisations – the CBU for the FCA and the Prudential Business Unit for the PRA.
