Lloyds Banking Group has been fined a record £28m over incentive schemes that rewarded staff with "champagne bonuses" and put advisers under pressure to hit sales targets or face demotion.
The Financial Conduct Authority said it was the highest penalty ever imposed against a UK retail banking operation and came after it uncovered “serious failings” in bonus schemes within Lloyds TSB, Halifax and Bank of Scotland that saw frontline staff pick up windfalls even when products were mis-sold.
The investigation focused on sales of investment products, such as stocks and shares, individual savings accounts (Isas), and insurance protection products, including critical illness and income protection cover between January 2010 and March 2012. More than one million such products were sold to more than 690,000 customers in this period.
Lloyds has begun contacting customers, but said it was too early to give details on the number of those who may be due compensation. It is thought a small percentage of the 690,000 will be due redress.
The FCA said the Lloyds bonus schemes had worrying “higher risk” features, which offered the potential of an automatic promotion and pay rise. But those who failed to meet sales targets could face demotion and a pay cut of as much as 50%.
In 2011, around 14% of advisers within Lloyds TSB were demoted, while 10% were promoted.
The FCA said in the worst case it had seen, one adviser sold insurance products to himself, his wife and a colleague to prevent himself being demoted.
Lloyds TSB also offered a “champagne bonus” that could see an adviser land 35% of their monthly salary, while Halifax and BoS paid one-off prizes, such as a “grand in your hand” for meeting certain targets. Management oversight of the schemes was so lax that seven out of 10 advisers at Lloyds TSB and three out of 10 at Halifax were rewarded with monthly bonuses even though many sales were found to be mis-sold or potentially mis-sold, according to the FCA.
More than 200 sales advisers at Lloyds TSB received a bonus even when all of their sales were unsuitable or potentially unsuitable.
Taxpayer-backed Lloyds has already paid out £8bn to compensate customers mis-sold PPI. The FCA said its penalty was increased by 10% as Lloyds ignored repeated industry warnings from regulators over incentive schemes.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “Customers have a right to expect better from our leading financial institutions.”
Lloyds admitted its management of such schemes was “inadequate”.