FCA: ` Fines ` Lloyds Banking Group ‘ for Serious Sales Incentive Failing’s ‘

#AceFinanceNews – FCA fines Lloyds Banking Group firms a total of £28,038,800 for serious sales incentive failings

Published: 11/12/2013   Last Modified : 11/12/2013

The Financial Conduct Authority (FCA) has fined Lloyd’s TSB Bank plc and Bank of Scotland plc, both part of Lloyd’s Banking Group (LBG), £28,038,800 for serious failings in their controls over sales incentive schemes. The failings affected branches of Lloyds TSB, Bank of Scotland and Halifax (which is part of Bank of Scotland).

This is the largest ever fine imposed by the FCA, or its predecessor the Financial Services Authority (FSA), for retail conduct failings.

The incentive schemes 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. In one instance an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted.

Tracey McDermott, the FCA’s director of enforcement and financial crime, commented:

“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.

“Because there have been numerous warnings to the industry about the importance of managing incentives schemes, and because Lloyd’s TSB had been fined in 2003 for unsuitable sales of bonds, we have increased the fine by ten per cent.

“Both Lloyd’s 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.”

The FCA found that both firms had higher risk features in their advisers’ financial incentive schemes which were not properly controlled.  This created a significant risk that advisers would maintain or increase their salaries, and earn bonuses, by selling products to customers that they did not need or want.

The FCA increased the fine by 10 per cent because:

  • The previous regulator, the FSA, had warned about the use of poorly managed incentive schemes over a number of years; and
  • The firms’ previous disciplinary record, including an FSA fine on Lloyd’s TSB Bank plc for the unsuitable sale of bonds in 2003 caused in part by the general pressure to meet sales targets.

The FCA has an objective to protect consumers and the changes made by the firms since the investigation will help ensure their customers are treated better in future. The FCA expects all financial incentive schemes to be designed carefully with good customer outcomes in mind, and the risks they pose must be identified and managed properly.

Both firms have agreed to carry out a review of higher risk advisers’ sales and pay redress where unsuitable sales took place. It is not yet possible to say how much redress will be paid until the firms have identified how many customers are affected. Customers do not need to take any action at this stage to be included in the review and they will be contacted by the firm in due course.

More detail on the FCA’s investigation

The FCA’s investigation focused on advised sales of investment products (such as share ISAs) and protection products (such as critical illness or income protection) between 1 January 2010 and 31 March 2012.

During this period:

  • Lloyd’s TSB advisers sold more than 630,000 products to over 399,000 customers, who invested about £1.2bn and paid £71m in protection premiums.
  • Halifax advisers sold over 380,000 products to more than 239,000 customers, who invested around £888m and paid £38m in protection premiums.
  • Bank of Scotland advisers sold over 84,000 products to over 54,000 customers, who invested around £170m and paid £9m in protection premiums.

The incentive schemes rewarded advisers through variable base salaries, individual and team bonuses and one-off payments and prizes.

Systems and controls used by the firms to manage the incentive schemes were inadequate. While advisers were required to meet certain competency standards to be eligible for promotions and bonuses, this control was seriously flawed and 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. Further, 229 advisers at Lloyd’s TSB received a bonus even when all of their assessed sales were deemed unsuitable or potentially unsuitable; and 30 advisers received a bonus in the same circumstances on more the one occasion.

The managers that were responsible for ensuring good practice by advisers also had their own performance measured against sales targets – a clear conflict of interest that needed careful management.

The FCA recognises that firms may want to incentivise staff to sell but the risks inherent in any incentive scheme, however well designed, must be managed. In this case the scheme presented significant risks but the firms did not ensure that their systems and controls were sufficient to mitigate those risks.

In September 2012 the FSA published a review into sales incentives, highlighting some of the poor practices used by firms across the retail market including some of the UK’s biggest financial institutions. One institution was referred to enforcement and the FCA can confirm that was LBG.

The FCA is currently 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.

The firms agreed to settle at an early stage and therefore qualified for a 20 per cent discount.

Without the discount the total fine would have been £35,048,556.

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Fitch International Rating Agency : Downgrades the Ratings of 9 Russian State Owned Companies and Revises Outlook on 16 Banks ‘

#AceFinanceNews – MOSCOW, March 24 – The Fitch international rating agency has downgraded the ratings of nine Russian state-owned companies, including Gazprom and LUKOIL, to negative from stable.

The agency has also revised its outlook to negative from stable on 16 Russian banks, including Sberbank, Rosselkhozbank, Alfa Bank, Gazprombank and Vensheconombank.

“The rating actions follow Fitch’s revision of the Russian Federation’s Outlook to Negative from Stable and the affirmation of its Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB’ on 21 March 2014,” the agency said in a press release on Monday, March 24.

On March 21, Fitch revised its rating of Russia to negative from stable citing a potential impact of Western sanctions on the economy and business environment in Russia.

Fitch analysts think that the direct effect from the declared sanctions will not be significant, but in the future investors can face new measures such as restrictions on Russian companies’ access to international capital markets.

Russian Finance Sources

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#fitch, #gazprom, #lukoil, #russia, #russian, #russian-federation, #sberbank

` Several Hundred ` Bulgarian's ` massed in `Sofia ' chanting ` EU did not Free Bulgaria from Turkish Domination – it was Russia '

#AceFinanceNews – SOFIA, March 24 – Several hundred Bulgarian citizens massed before the presidential administration building in the capital Sofia on Monday to protest against EU sanctions imposed on Russia.

Demonstrators gathered to wield posters reading “The EU did not free Bulgaria from Turkish domination, but Russia did” and “Crimea’s Bulgarians want Sofia to recognize the referendum”.

They arrived, attracting television broadcasters and news photographers, as the building assembled the country’s national security council to discuss events in Ukraine and possible consequences for Bulgaria.

Before the meeting, locals voiced confidence the meeting would not reach a consolidated agreement. Bulgaria’s President Rosen Plevneliev and his ruling party Citizens for European Development of Bulgaria have attacked Russia’s position and supported European sanctions.

But Prime Minister Plamen Oresharski stood against the punishment. “It should be mentioned that we would not support tight economic sanctions without analysing their consequences.

Our analysts say our country will be among those who will suffer the most from these consequences”, the premier said, adding that some “compensation mechanisms” needed discussion.

Russian News and Media Sources

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#bulgaria, #bulgarian, #eu, #european, #european-union, #sofia, #turkish

` Israel’s Foreign Ministry goes on an All-Out Strike over Workers ` Pay and Conditions’ for Indefinite Period ‘

#AceFinanceNews – ISRAEL – 24 March – Employees of Israel’s Foreign Ministry went on an all-out strike Sunday for the first time in the country’s history over a dispute surrounding workers’ salaries and conditions.

The dispute has been going on for nearly two years.

Seven months of negotiations ended on March 4, when workers rejected a proposal by the Finance Ministry.

Israeli ambassadors abroad will not go to work, no consular services will be available, and Israel will not be represented at any international gatherings during the strike.

Even the Foreign Ministry’s political leadership and management will be locked out.

The strike is indefinite and will affect everyone, including employers bringing foreign workers to Israel for work, immigrants, and anyone who wants to travel to Israel – including foreign dignitaries.

“Today, for the first time in Israel’s history, the foreign ministry will be closed and no work will be done in any sphere under the ministry’s authority,” a statement by the ministry’s workers’ committee reads.

It added that the strike would be “open ended” because of the “employment conditions for Israeli diplomats and because of the draconian decision by the Treasury to cut workers’ salaries.”

Israel News and Media Sources

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#finance-ministry, #israel, #israels-foreign-ministry, #political, #treasury

` Grain Prices Rise due to the Instability in the Ukraine and Unfavourable Weather Conditions in the US ‘

#AceFinanceNews – MOSCOW – March 24 – World grain prices continue to rise because of unfavourable weather conditions in the United States, as well as due to the importers’ apprehension over the possible drop in grain shipping from Black Sea ports in connection with the in-stable situation in Ukraine, Russia’s Agriculture Ministry said in a monitoring report on the situation on the agro-industrial markets.

Over the third week of March, soft wheat average prices in the United States rose by 5% to 300 US dollars per tonne.

The previous week, the prices had already gone up by 10 dollars (3.6%) to 286 dollars per tonne.

Meanwhile, the Russian grain export in 2013-2014 agricultural year (since the beginning of July 2013) reached 19.7 million tonnes, increasing by 41% compared with the previous similar period.

Russian Commodity News

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#agricultural-ministry, #agriculture, #black-sea, #dollar, #grain, #moscow, #russias, #russian, #ukraine, #united-states, #us, #wheat

#AceFinanceNews MOSCOW March 24 Crimean companies transferred to…

#AceFinanceNews – MOSCOW – March 24

Crimean companies transferred to Russian jurisdiction will be exempt from taxes for transitional period, Prime Minister Dmitry Medvedev said.

#afn2014, #dmitry-medvedev, #russian-taxes

Alexei Bazhanov: Placed on the ` International Wanted List ‘ by Tverskoy Court ‘ in Moscow ‘

#AceFinanceNews – MOSCOW – March 24 – Former Russian Deputy Agriculture Minister Alexei Bazhanov is placed on international wanted list. Tverskoy court in Moscow said this on Monday at hearings of
Bazhanov’s absentia arrest for embezzlement of more than 1.1 billion rouble credit that Russian agricultural bank Rosselkhozbank gave to refined sunflower oil-producing holding Masloprodukt.

“At first, Bazhanov was put on the federal, then on international wanted list,” his lawyer said at the court session.

The detective asks to sanction absentia arrest of Bazhanov who escapes justice outside Russia.
For his part, the lawyer of the former senior official asks to satisfy this request, because she finds it illegal and groundless.

The lawyer also attached to case files medical documents saying that Bazhanov is undergoing treatment abroad.

Bazhanov is a defendant in the criminal case over embezzlement of 1.1 billion rubles of state funds belonging to Russian largest leasing company Rosagroleasing.

Three criminal cases merged at the trial are being investigated against the former senior official.

Russian Media and News Sources

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#agriculture, #international-wanted-list-iwl, #moscow, #rouble, #tverskoy

` Gunmen force a vehicle to stop and rob it of as much as $600,000 whilst transferring money to Libyan Bank’

#AceFinanceNews – LIBYA – 24 March – As much as $600,000 was stolen from a van transporting money to a Libyan bank when gunmen forced the vehicle to stop and robbed it, according to local media.

Five men were reportedly involved in the incident.

The van was transporting money from a telecommunications company in the port city of Derna.

The city is a stronghold for hard-line Islamists and is largely out of government control.

#AFN2014

#islamists, #libya, #libyan

` South Korea boosts its Air Defences with 40 `Radar Avoiding F-35 fighter Jets ‘ plus their Support Systems ‘

#AceFinanceNews – SOUTH KOREA – 24 March – South Korea expects to pay around 7.34 trillion won (US$6.79 billion) for 40 Lockheed Martin F-35 fighter jets, Reuters said, citing its sources.

The budget to buy the radar-evading F-35s plus support systems was reportedly announced to a committee overseeing military purchases on Monday.

As Seoul boosts its air defences amid simmering tensions in the region, it also confirmed plans to buy four Northrop Grumman Global Hawk unmanned aircraft to monitor neighbouring North Korea.

The deals come as ties between Japan, China and South Korea have chilled over the past year.

#AFN2014

#china, #japan, #reuters, #seoul, #south-korea