Lloyds Fined Record £28 Million Over Sales Incentives

Stephen Little

12 December 2013

Lloyds Banking Group, the partly UK state-owned group, has been fined a record £28 million by the Financial Conduct Authority for "serious failings" relating to its sales incentives, which resulted in a culture of mis-selling among advisors.

The FCA said it was the largest ever fine imposed by it or its predecessor the Financial Services Authority for retail conduct failings.

The regulator said that incentive schemes put sales staff under pressure to hit targets to get a bonus or avoid being demoted, rather than focus on what consumers may need or want.

In one instance, an advisor sold protection products to himself, his wife and a colleague to prevent himself from being demoted, the FCA said.

The failings affected branches of Lloyds TSB, Bank of Scotland and Halifax.

The FCA's investigation focused on advised sales of investment products, such as share ISAs and income protection, between 1 January 2010 and 31 March 2012.

During this period, more than 1 million products were sold to around 700,000 customers, who invested just over £2 billion and paid £118 million in protection premiums.

Tracey McDermott, the FCA's director of enforcement and financial crime, said the fine had been increased 10 per cent following numerous warnings to the industry about the importance of managing incentives schemes. The bank was also fined in 2003 for the unsuitable sale of bonds.

“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," said McDermott.

“Both Lloyds TSB and Bank of Scotland have made substantial changes, and the reviews of sales and the redress now being made should right many of these wrongs,” she added.

Lloyds Banking Group said in a statement that it had cooperated fully with the FCA throughout the investigation and had already commenced a review to address potential customer impacts that may have occurred as a result of the failings.

"The group recognises that 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 that any customer impacts are dealt with quickly and fully," Lloyds Banking Group said.

The fine comes on top of what has been a difficult period for the bank.

Lloyds was bailed out by the British government in 2008 following the financial crisis to save it from collapse and has been partly owned by the British taxpayer ever since.

In its third quarter results, Lloyds Banking Group announced a pre-tax loss of £440 million after setting aside a further £750 million in compensation for the payment protection insurance mis-selling scandal, taking the overall figure to roughly £8 billion.

Earlier this year, the bank was also fined £4.3 million by the FCA for failings causing late redress payments relating to payment protection insurance.

As part of the UK government's plan to return Lloyds to full private ownership, the bank has sold a number of its non-core assets to strengthen its balance sheet.

On Monday, Lloyds Banking Group sold its remaining 21 per cent stake in wealth management firm St James's Place for £680 million as part of its strategy to focus on its retail and commercial businesses. For more on this story, click here.