Cheval launched a “sales incentive” offering brokers who submitted bridging business a LG 32inch LCD HD TV, Sony PlayStation 3s, Nintendo Wii Us, Kindle Fire HD tablets, Mont Blanc pens and a Virgin Experience Day, as well as items from Tiffany, Louis Vuitton, Gucci and Michael Kors.
But following a Mortgage Introducer investigation the FSA said that this was in danger of breaching Treating Customers Fairly principle 6 and conflicts of interest principle 8.
Principle 6 states: “Firms must be able to demonstrate that they are consistently delivering fair outcomes to consumers and that senior management are taking responsibility for ensuring that the firm and staff at all levels deliver the consumer outcomes relevant to their business through establishing an appropriate culture.”
And Principle 8 says: “A firm must manage conflicts of interest fairly, both between itself and its customers and between one customer and another.”
A spokesman from the regulator said: “In line with our Principles for Businesses, we expect all authorised firms to treat customers fairly and be mindful of any conflicts of interest.”
After Mortgage Introducer contacted Cheval – a regulated bridging lender – finance director Gavin Diamond pulled the incentives.
Diamond said: “We believed that when we came up with this promotion we had considered everything from the same regulatory perspective. However it seems that we may have got it wrong and the deal is pulled immediately.”
In a speech in September this year FSA managing director Martin Wheatley warned banks to stop using sales incentives that would encourage mis-selling and cause detriment to the consumer.
He said: “What we found is not pretty. Most of the incentive schemes we looked at were likely to drive people to mis-sell in order to meet targets and receive a bonus, and these risks were not being properly managed.
“I want to draw a line in the sand and use the report we are publishing today to set out our expectations. CEOs are ultimately accountable for the way their staff are incentivised, so we expect them to take a real interest in fixing this.”
The Cheval deal – criticised for manipulating advice and being a volume based incentive – had offered intermediaries submitting cases to the bridging lender valued at more than £250,000 and completed before the end of the year the chance to select from the range of “gifts”.
Any gifts received were to be given in addition to any procuration or broker fee that would ordinarily be paid for a case. Diamond said the gifts would be displayed in a monetary value on the KFI.
One bridging lender said: “This isn’t the kind of publicity we need for the sector. The FSA spotlight is on us and we need to do the right thing.”