The Double-Points Scheme and the 70-Year-Old Clients
You are Head of Distribution at a stockbroking company with 18 branches. In Q1 the firm launched a Shariah-compliant growth fund and changed the incentive scheme: 2.5% commission on the first RM100,000 sold per client, a double-points multiplier for the first RM3 million each branch sells, and a President's Club trip for the top 10. By March, fund sales reach RM210 million, up 45% quarter-on-quarter. Compliance's file review finds that 22% of files are missing a risk profile or show a profile inconsistent with the product; there are 37 complaints, 12 of them from customers aged 70 and above who placed more than half their savings in the fund; a branch manager switched RM4.2 million of clients' sukuk holdings into the fund without a new suitability assessment; and two representatives split commission with an external telesales agent who cold-called numbers from a leaked database. The employee survey shows 'speak-up' scores down 18 points. The CEO's email says: 'Q2 numbers matter more than ever - let's park the culture programme until after the audit.'
1. Diagnose the root causes and identify the principal risks. Why is this not simply a few bad apples?
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Root causes. First, incentive design: 2.5% commission plus a double-points multiplier for the first RM3 million rewards volume in the opening weeks of a push, and predicts concentration in the highest-paying product. Second, supervision: a 22% file defect rate means branch managers are not checking files before submission. Third, process: suitability has become a form rather than a conversation - the RM4.2 million sukuk switch with no new assessment is the proof. Fourth, tone at the top: the CEO's email tells staff that numbers outrank conduct, and an 18-point fall in speak-up scores is the cultural signal that follows.
Risks. Client harm to 12 elderly customers who are over-concentrated; mis-selling claims and remediation costs; breach of fair treatment and suitability requirements; the telesales arrangement, which raises CMSA, data protection and possibly fraud and AML issues if the database was leaked; and franchise and reputational damage. The commission split with an unlicensed external agent is the single most serious item.
Why it is systemic. The same scheme, the same supervision gap and the same message were applied across 18 branches and produced the same behaviour in more than one. Treating it as individual misconduct leaves every cause in place and guarantees a repeat after the next product launch.
2. What would you do immediately, at 30 days and at 90 days?
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Immediate (0-14 days). Suspend the double-points multiplier and the President's Club element. Pause new branch sales of the fund pending a file review. Suspend the two representatives and the branch manager pending investigation. Terminate the telesales arrangement and secure the database and devices. Preserve all records. Report to the board audit and risk committee and assess whether notification to the SC is required.
30 days. Review every Q1 file or a statistically valid sample for suitability. Remediate harmed clients - switch back at no cost, refund charges, compensate where loss is attributable. Redesign incentives around quality metrics (file quality, complaint rate, persistency, suitable outcomes) with clawback. Retrain all branch staff and managers on suitability and on the approved script. Start mystery shopping.
90 days. Commission an independent culture review. Relaunch the whistleblowing channel with visible escalation to the board. Launch a conduct dashboard covering complaints, file defects and speak-up cases, reviewed monthly by the board. Publish disciplinary outcomes internally so staff see that consequences are real. Have the board approve a conduct strategy and report progress quarterly. Each action needs an owner, a date and evidence of completion.
3. How do you respond to the CEO's instruction to park the culture programme?
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Reframe it as financial risk. Parking the programme is a decision to accept mis-selling, compensation and enforcement risk, and the audit will test conduct controls whether or not the programme is running. Bring three pieces of evidence: the 12 elderly clients and the RM4.2 million switch; the 22% file defect rate; the telesales arrangement, which may be unlawful. Then offer a choice - a 90-day remediation plan with a cost estimate, or a documented board-level acceptance of the risk.
Escalate if necessary. The CEO can set priorities but cannot suspend a regulatory obligation. If the instruction stands, put the advice in writing to the CEO and, if unresolved, to the board chair and the audit committee. That is not disloyalty; it is the job. Offer a practical compromise: keep remediation running with a small team while Q2 sales continue on a compliant basis.
Personal accountability. Document the advice and the response. A head of distribution who knowingly goes along with a park-the-culture instruction becomes part of the problem, and any fit-and-proper assessment will look at what the firm knew and what it did. The test is whether a reasonable head of function could defend the decision to a regulator - and on these facts, it could not.