Lloyds Banking Group has been fined a record £28m by the Financial Conduct Authority (FCA) for serious failings in the way the bank incentivised its staff to sell financial products.
In one example of the pressure Lloyds Banking Group staff were under, the FCA found that an adviser had sold protection products to himself, his wife and a colleague to prevent himself from being demoted.
The fine, the largest that the new regulator has issued since replacing the Financial Services Authority in April 2013, is split by £16.4m for Lloyds TSB and £11.6m for Bank of Scotland.
Lloyds Banking Group has admitted the failings and will be contacting customers who have suffered as a result of the bank’s conduct.
Bonuses paid when products were mis-sold
Pressure was put on sales staff to hit targets to get a bonus or avoid being demoted, rather than to focus on what consumers might need or want. The incentive schemes rewarded advisers through variable base salaries, bonuses, one-off payments and prizes.
The FCA found evidence that bank staff were still receiving high bonuses, even when the sales of financial products to customers were deemed to be inappropriate by the bank. The FCA stated that 70% of advisers at Lloyds TSB and 30% 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.’
The failings identified by the FCA affected branches of Lloyds TSB, Bank of Scotland and Halifax. The FCA’s investigation focused on advised sales of investment products (such as stocks and share ISAs) and protection products (such as critical illness or income protection) between January 2010 and March 2012.
During this time, over £2bn was invested across Lloyds Banking Group products and £118m was paid in protection premiums.
Bank staff told Which? they were pressured to sell
In December 2012, Which? interviewed over 500 frontline bank staff at Britain’s five largest banks. Two thirds said that they were under more pressure to sell than ever before.
The results for Lloyds Banking Group made for grim reading at the time.
- 49% of employees who sell said they were unhappy in their jobs because of the pressure to sell
- 45% with sales targest said that the company’s sales objectives drive them to sell even when it’s not appropriate
- 79% said there was day to say emphasis from managers on the need to sell
Go further: Bank staff under more pressure than ever to sell – read about our story last year
Customers have a right to expect better
This is not the first time Lloyds Banking Group has been in hot water over mis-selling and unsuitable sale of financial products. In 2003, the bank was fined for the unsuitable sale of investment bonds.
With that in mind, the FCA decided to increase the fine to Lloyds by 10%. An FCA spokesperson said that ‘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.’
Mis-selling won’t be tolerated
Commenting on the fine, Richard Lloyd, executive director at Which? said: ‘It’s right that in this case the Financial Conduct Authority is taking strong action by imposing their largest fine. This should send a clear message to the banking industry that mis-selling won’t be tolerated and that customers, not sales, must come first.
‘We now need to see the new professional banking standards body deliver a big change in banking culture across the industry, so that front line staff and their managers are not incentivised to sell products that customers don’t want or need.’
What to do if you think you were mis-sold by Lloyds Banking Group
Lloyds Banking Group today accepted the findings of the FCA’s investigation and is already contacting customers, potentially affected customers over the coming months. The bank said that 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.
You can find lots of information about how to complain to your bank, and what to do if you think you’ve been mis-sold, over on our Consumer Rights website.