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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Sell-Out of Tax Payers – As Sell-Off of Lloyds Bank – To Large Investors – Takes Place

English: Study on alternative investments by i...

English: Study on alternative investments by institutional investors. (Photo credit: Wikipedia)

Government sells 6 per cent of shares in Lloyds Banking Group, at 75p per share.

The government has today begun the process of selling part of its shares in Lloyd’s Banking Group. It has sold 6 per cent of the shares in the bank, at a price of 75p per share. A profit has been made from the sale, which will be used to pay down the national debt.

The Chancellor received advice from UK Financial Investments yesterday that it would be appropriate to begin the process to sell part of the government’s shareholding in Lloyd’s. The Chancellor agreed with that advice and authorised the process to begin.

Today marks an important step in the government’s plan for the recovery of Britain’s banking system.

The Chancellor, George Osborne, said:

I can confirm this morning that we have sold 6% of Lloyd’s Bank at 75p a share. That is a profit for taxpayers, and rightly so. The money will be used to reduce the national debt by over half a billion pounds.

This is another step in the long journey in putting right what went so badly wrong in the British economy; it’s another step in repairing the banks; it’s another step in getting the money back for the taxpayer; and it’s another step in reducing our national debt.

All of those things together are good news.

If you look at what has happened over the last 12 hours with Lloyd’s, you have investors from around the world investing in a British bank. That is a sign the British economy is turning a corner.

On the face of it this looks good for the tax payer  and couched in the correct way such as the return and the overall benefits, we could start to believe this government really cares about the use of tax payers money! The fact is look much deeper at the way it has been worded by our Chancellor and look at who will benefit and a very different story emerges! The actual shares are to be sold off or should l say offered to:

 Institutional investors are organizations which pool large sums of money and invest those sums in securitiesreal property and other investment assets. They can also include operating companies which decide to invest their profits to some degree in these types of assets.

Typical investors include banks, insurance companies, retirement or pension fundshedge fundsinvestment advisors and mutual funds. Their role in the economy is to act as highly specialized investors on behalf of others. For instance, an ordinary person will have a pension from his employer. The employer gives that person’s pension contributions to a fund. The fund will buy shares in a company, or some other financial product. Funds are useful because they will hold a broad portfolio of investments in many companies. This spreads risk, so if one company fails, it will be only a small part of the whole fund’s investment.

Institutional investors will have a lot of influence in the management of corporations because they will be entitled to exercise the voting rights in a company. They can actively engage in corporate governance. Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a large part in which companies stay solvent, and which go under. Influencing the conduct of listed companies, and providing them with capital are all part of the job of investment management.

This will of course look to bolster the economy for the institutions and at the same time make the pension funds look more healthy for the beleaguered OAPS investments, which of course were decimated back in 2008, at the time of the financial crisis, brought on mainly by the banks and their risky lending policy, something that our previous Bank of England Manager would not sanction, but enter Osborne’s new replacement and all of a sudden, risky lending is back on the cards! Anyone uncertain of Mr Carney’s track record for taking risks read his policy in the Canadian Banking Industry and see what l mean!

So now we have what l can only term as a sell-out of the tax payer, having bolstered up the banks with the hard-earned tax payers funds, using infrastructure funds ,that should light our streets or renew our roads, and now the 4 year plan is completed! Oh yes also a split between the savings and retail arms of what was Lloyd’s TSB Bank Plc and now we have to distinct banks Lloyd’s Bank PLC and TSB Bank PLC, has also taken place, allowing any toxic assets to disappear, into the restructuring process!

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240104/Chancellor_letter.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240105/UKFI_letter.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240106/Perm_sec.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240104/Chancellor_letter.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240105/UKFI_letter.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240106/Perm_sec.pdf

UK Financial Investments:

Take a look at their site and view their pdf containing details of the sell-off you even have to agree not to use the information in the US, but visit here is a link to their site: http://www.ukfi.co.uk/

#acenewsservices, #sellout, #business, #economy, #economy-of-the-united-kingdom, #george-osborne, #government, #lloyds, #lloyds-bank, #lloyds-banking-group, #mutual-fund, #politics, #the-survivors-of-the-chancellor, #uk-financial-investments-limited