Lloyds TSB and Bank of Scotland fined £28m
Lloyds TSB Bank and Bank of Scotland have been fined more than £28 million by the City regulator for "serious failings in their controls" over sales incentive schemes.
The Financial Conduct Authority (FCA) found that incentive schemes surrounding the sale of insurance products between 1 January 2010 and 31 March 2012 "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".
Such was the pressure on staff, it added, that one bank employee sold insurance products to himself, his wife and a colleague to prevent himself from being demoted.
The FCA said it was too early to tell who would be entitled to compensation and how much would be due, but it said that increases in the stockmarket since the mis-selling took place means "customer detriment…may be low." Lloyds and Bank of Scotland have agreed to pay redress where any unsuitable sales took place.
Branches of Lloyds TSB, Bank of Scotland and Halifax were all reprimanded by The Financial Conduct Authority (FCA) and ordered to pay the biggest fine it has ever imposed for failings at a retail bank.
The FCA said the fine was inflated by 10% because its predecessor, the Financial Services Authority, had warned about "the use of poorly-managed incentive schemes over a number of years".
It added that another contributory factor was the banks' previous disciplinary record, including a fine on Lloyds TSB Bank "for the unsuitable sale of bonds in 2003, caused in part by the general pressure to meet sales targets".
The fine applies to the historical corporate structure of the banking group – in September 2013, Lloyds shed 631 of its 1,931 Lloyds TSB branches to comply with EU law. They were formally separated from Lloyds in September 2013 and became TSB Bank branches, with the remaining branches rebranded as Lloyds Bank.
Tracey McDermott, the FCA's director of enforcement and financial crime, said: "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 that we published last year makes it quite clear that 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."
In a statement, the Lloyds Banking Group, said: "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."
It also said: "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. Customers do not need to take any action at this stage to be included in the review and they will be contacted in due course."
Because the banks agreed to settle early with the FCA, it qualified for a 20% discount on the fine, which otherwise would have been £35,048,556.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.