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FCA fines Lloyds £28m over sales incentives

The FCA has fined Lloyds Banking Group over £28m over “serious failings” related to its sales incentives schemes.

This is the largest ever fine imposed by the FCA or the FSA for retail conduct failings. 

The regulator says the incentive schemes run by Lloyds led to a serious risk that sales staff were put under pressure to hit targets to get a bonus or avoid being demoted, rather than focus on what consumers may need or want.

It cites one case where an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted.

The FCA increased the fine against Lloyds by 10 per cent because the FSA had previously warned about the use of poorly managed incentive schemes over a number of years. The penalty was also increased in light of Lloyds’ previous disciplinary record, including an FSA fine against Lloyds TSB Bank for the unsuitable sale of bonds in 2003 caused in part by the general pressure to meet sales targets.

The fine is equivalent to 15 per cent of the bank’s revenue from selling investment and protection products through its bancassurance channel over the revelvant period of 1 January 2010 to 31 March 2012. Lloyds made a profit of £212.4m from the products over the period. 

The investigation focused on advised sales of investment products, such as share Isas, and protection products such as critical illness or income protection between January 2010 and March 2012.

During this period:

  • Lloyds TSB advisers sold more than 630,000 products to over 399,000 customers, who invested about £1.2bn and paid £71m in protection premiums.
  • Halifax advisers sold over 380,000 products to more than 239,000 customers, who invested around £888m and paid £38m in protection premiums.
  • Bank of Scotland advisers sold over 84,000 products to over 54,000 customers, who invested around £170m and paid £9m in protection premiums.

Incentive schemes rewarded advisers through variable base salaries, individual and team bonuses and one-off payments and prizes.

The regulator found that seven out of ten advisers at Lloyds TSB and three out of ten at Halifax still received their monthly bonus even though a high proportion of sales were found – by the firms themselves – to be unsuitable or potentially unsuitable.

Some 229 advisers at Lloyds TSB received a bonus even when all of their assessed sales were deemed unsuitable or potentially unsuitable; and 30 advisers received a bonus in the same circumstances on more than one occasion.

Lloyds TSB and Bank of Scotland have agreed to carry out a review of higher risk sales and pay redress where appropriate.

FCA’s director of enforcement and financial crime Tracey McDermott says: “The findings do not make pleasant reading.  Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the customer at the heart. The review of incentive schemes we published last year makes it quite clear this is something to which we expect all firms to adhere. 

“Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first, but firms will never be able to do this if they incentivise their staff to do the opposite.”

The FSA published a review into sales incentives in September 2012, which found that 20 of 22 firms reviewed operated sales incentives schemes that increased the risk of misselling.

It emerged at the time that Lloyds was being investigated over its sales incentives. 

In a statement, Lloyds Banking Group says: “As soon as these issues were identified in 2011, the group acted immediately to make significant changes to ensure all its schemes focused on doing the right things for customers and providing good service. The FCA has acknowledged we have made substantial improvements to systems and controls governing incentives. 

“The group has already commenced a review to address potential customer impacts that may have occurred as a result of these failings. We are already contacting customers, and will continue to contact potentially affected customers over the coming months.

“The group recognises its oversight of these particular schemes during the period in question was inadequate and apologises to its customers for the impact that they may have had.  We are determined to ensure any customer impacts are dealt with quickly and fully.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. £28 million fine but how much did they make on these sales?

  2. @Seth, £28 million is the fine, the group will now have to go back and offer redress (plus any interest owing) to the clients effected which should have a far greater impact than the fine alone….a sign again of just how valuable the the service offered by a professional and personal IFA is compared to the corporate machines…the trouble is this negative press effects us all as whole.

  3. @ Seth, the fine will be pennies compared to the cost of redress.

    I see this as a good news story – the banks have been doing this too much and for too long.

  4. Franz Kafka, Lewis Carroll and Hans Anderson together couldn’t have made this up.

    A Nationalised Quango paid for by private enterprise fines a Nationalised Enterprise paid for by the taxpayers. The taxpayers pay the fine. Private enterprise (who also taxpayers) pay the salaries and costs of the prosecutor and pay taxes to fund the fine on the perpetrator.

    Well I guess it spins the money around and adds to our spurious GDP figures.

  5. I am sure the FCA will look into all the other banks, having recently been made redundant and seen the light re starting up my own financial advice business, it amazed me the pressure that the bank I worked at (red tie and sponsor mclaren/ferrari) put on not just the financial advisers but more so the counter staff, the banking advisers, you would regularly be asked to open credit cards/bank accounts to get the figures up. Until Banks (probably middle management and below) stop putting the pressure on the staff customers will not receive the service that they deserve.

  6. Any person involved in this business for the past 20 years knew what was going on in the banks and how they were exploiting their customers base for profit. The FSA hierarchy knew this was happening but turned their usual blind eye to the problem knowing they would probably want a job there after they left the regulator. This wasn’t just one bank doing this it was all of them, and having worked for a bank in the past I saw first hand what went on. Personal Bankers trawling accounts for information about loans and financial services so they could sell high cost products to hit targets or suggest the customer attended the branch for an appointment with the adviser. The client/customer was and probably still is a cash cow.

    The pressure that was brought to bear on advisers and customer facing staff was disgraceful with threats and intimidation the normality back then. Many a time I attended a morning meeting and witnessed first hand staff in tears because they hadn’t done what they were supposed to have done the day before.
    It was a terrible environment to work in and for my own sanity I left a well paid job with benefits to go self employed as I couldn’t stand it any longer.

    The whole culture was rotten to the core and 10 years after I left the bank they’re finally doing something about it. Shame on them for taking so long.

  7. @James I did the same as you with LTSB group in 1998. Looks like they didn’t change those spots in 15 years. The F-pack appears to have been complicit in this up to 3 months ago. Watch thin space.

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