Tue, Jan 7, 2014

FCA fines Lloyds Banking Group firms a total of £28,038,844

The FCA announced on 11 December that it had fined Lloyds TSB Bank plc and Bank of Scotland plc, both part of Lloyds Banking Group, just over £28m for serious failings in their controls over sales incentive schemes. This is the largest ever fine imposed by the FCA, or its predecessor regulator the FSA, for retail conduct failings.

The FCA found that the incentive schemes in place at the banks led to a serious risk of sales staff being put under pressure to hit targets to get a bonus or to avoid being demoted, by selling products to customers that they did not need or want. In one instance an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted.

Systems and controls used by the Firms to manage the incentive schemes were inadequate, particularly over competency standards set in order to be eligible for promotions and bonuses. 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. Managers responsible for ensuring good practice by advisers also had their own performance measured against sales targets; this constituted a clear conflict of interest that needed careful management.

Tracey McDermott, the FCA’s director of enforcement and financial crime noted that financial incentives are an important indicator of management values and a key influence on the culture of the organisation, and must be designed with the customer at heart.

The fine was increased by an additional 10% because of the numerous warnings to the industry about the importance of managing incentives schemes, and because Lloyds TSB had been fined in 2003 for unsuitable sales of bonds. The FCA is conducting follow up work to see if firms are now managing the risks to consumers from sales based incentives, and plans to publish the findings in the first quarter of 2014.

Pleaseclick here to view the press release, or click here for the final notice.

Financial Services Compliance and Regulation

End-to-end governance, advisory and monitorship solutions to detect, mitigate, drive efficiencies and remediate operational, legal, compliance and regulatory risk.