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 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 Lloyds TSB had been fined in 2003 for unsuitable sales of bonds, we have increased the fine by 10%.”
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:
• Lloyds 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.
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.
The firms agreed to settle at an early stage and therefore qualified for a 20% discount. Without the discount the total fine would have been £35,048,556.
