Following on from the publication of FinCoNet’s 2014 Report on ‘Responsible Lending – A review of supervisory tools for suitable consumer lending practices’, FinCoNet chose to focus on the impacts of, and potential consumer detriment arising from, sales incentives in the selling of consumer credit products. This work culminated in the publication by FinCoNet of its ‘Report on Sales Incentives and Responsible Lending – A study of the impact of sales incentives on the sale of credit products’ in January 2016. Building on the work of FinCoNet’s 2014 Report on Responsible Lending, the 2016 Report sought to provide a holistic view of the role that sales incentives play in responsible lending obligations in relation to the full suite of consumer credit products, with a focus on consumer protection. In doing so, the 2016 Report sought to assist jurisdictions in identifying current gaps and weaknesses in their regulatory regimes in relation to sales incentive schemes, including their supervisory and enforcement capabilities. A copy of the 2016 Report is contained in Appendix 2 of this Consultation Paper for ease of reference.
FinCoNet’s 2016 Report found ample evidence that poorly designed sales incentives can cause harm to consumers, individual firms and the financial system. It also found that, while the nature of incentives for sales staff appears to be relatively uniform across jurisdictions, there was a relative absence of specific rules and standards. The Report also concluded that this is an area where practices in one jurisdiction can influence practices in another jurisdiction and that there are specific behavioural reasons to be concerned about sales incentives in the field of credit specifically.
Having discussed the findings of this research at its Annual General Meeting in Cape Town, FinCoNet decided that, following the publication of the report itself, FinCoNet would launch a public consultation on a number of key topics arising from the Report. This would be done with a view to informing the development of standards and guidance in this field. To this end, this Consultation Paper sets out a number of points of guidance for responsible supervisory authorities in the field of sales incentives and responsible lending on which FinCoNet seeks views.
