The Financial Services Authority (FSA) is to clamp down on employee sales incentives in a bid to end the mis-selling of financial products.
In a statement later today, the FSA is expected to say that loans, insurance, and saving accounts should instead be sold to benefit the customer and not on a commission basis for bank staff.
The move comes after numerous mis-selling accusations in the last couple of years including payment protection insurance (PPI).
Speaking to an audience of senior bankers, compliance officers, trade and consumer groups, managing director of the FSA Martin Wheatley said a cultural change was needed in the way that banks operate which could 'only come from the top of the organisation.'
Martin Wheatley, who will also head the new Financial Conduct Authority (FCA) due to come into force next year, said that both the FSA and FCA will be working with the industry to help make the necessary changes.
It is common practice for institutions to offer commission based incentives for selling products. However, following a review of 22 financial firms, the FSA said that many incentive schemes were 'poorly managed' with a clear 'risk of benefiting sales staff rather than customers.'
It noted that many, if not all, of the recent mis-selling scandals had dysfunctional incentive schemes at the root of the problems, with payment protection insurance (PPI) serving as a good example.
In one instance, a firm excessively incentivised one product over another, therefore - despite claiming to offer impartial advice - there was a clear risk that its advisers would sell the product that earned them more money.
New rules coming into force at the end of the year will ban investments being sold on a commission basis. The Retail Distribution Review (RDR) rules however, will not cover financial products such as insurance.
The FSA is considering a programme of new measures to reduce the risks of mis-selling, including supervisory work, review of incentive schemes, enforcement proceedings and strengthening of the overall rules.
Welcoming the initiative, creator of Moneysavingexpert.com Martin Lewis said a shift needed to occur in order to bring back 'advisers' rather than 'sales people.'
An FSA consultation is currently open to any firm and individual wishing to comment on the management of incentive schemes.