UK watchdog says banks cleaning up sales practices

LONDON, Oct 17 (Reuters) - Britain's banks have begunchanging how they pay staff to help draw a line under years ofmis-selling financial products, the Financial Conduct Authoritysaid on Thursday.

Banks have already set aside 16 billion pounds to compensatecustomers for mis-sold loan insurance, one of a string ofscandals going back more than two decades, to include pensionsand endowment mortgages.

FCA Chief Executive Martin Wheatley said new supervisoryguidelines to stamp out incentives that lead to sales ofproducts a customer does not need were making a difference.

"The FCA's on-going investigation into incentives suggestsseveral UK banks are making strides on reforming rewardstructures, responding well to guidance," Wheatley told aBritish Bankers' Association conference.

The FCA was launched in April with a specific remit toprotect consumers better than its predecessor, the FinancialServices Authority.

"The early analysis - and I think we have to stress this isearly analysis - shows three of the biggest UK banks haveremoved the direct link to sales in incentive arrangements forfront-line staff in retail branches, and call centres."

Some concerns remain over the use of incentives in areaslike investment and protection sales, Wheatley added.

Going forward, the FCA will look at potential causes ofmis-selling due to bad design of products and sales targets.

"But it would be churlish not to recognise progress where itis made. And this is, potentially, one of the most significantsteps forward for the UK banking industry since 2008 in terms ofrepairing the relationship with retail customers," Wheatleysaid.