Bank of Scotland, Halifax and Lloyds have been fined a record £28 million after regulators uncovered “serious failings” in sales incentive schemes.
A probe by the Financial Conduct Authority found poor management of a string of targets and bonuses, variable salaries and one-off payments and prizes combined with a bias towards payment protection products resulted in the sale of policies and products many customers neither wanted nor needed.
Its findings outline insufficient oversight and control of the incentive system at the banks.
In one case, a Lloyds Banking Group salesman was said to have sold products to himself, his wife and a colleague in order to meet his targets and avoid a costly demotion.
FCA director of enforcement and financial crime Tracey McDermott said the results of the probe “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,” she said.
“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.”
The regulator’s probe focussed on the sale of investment and protection products between January 2010 and March 2012, a period during which more than a million products were sold to 722,000 BoS, Halifax and Lloyds TSB customers, who invested a total of £2.25 billion and paid £88m in premiums.
The brands have agreed to carry out a review of risk managers’ sales and will pay redress where necessary, but it is not yet known how many people are affected and how much could be paid out.
Customers will be included in the review automatically, the FCA said, and will be contacted by the bank in due course.
The findings showed that a mid-level Lloyds TSB sales advisor could see their annual base salary fall from £33,706 to £25,927 if they failed to meet 90% of their target over a period of nine months.
Further failure could see the basic wage cut to £18,189.
A “champagne bonus” of 35% of monthly salary was payable for anyone at the same bank reaching a sales threshold.
At Halifax and Bank of Scotland, one-off “grand in your hand” payments of £1,000 were available to those hitting monthly benchmarks.
Lloyds’ total fine was increased by 10% following a regulator’s warning over the practice early last year, and in recognition of a fine prompted by similar failings during bond sales in 2003.
It was then cut by 20% of the total after Lloyds agreed to settle at an early stage, but remains the biggest ever imposed for failings in retail, customer-focused banking.
A spokesman for Lloyds Banking Group said it had made “significant changes” to ensure all schemes were focused on customers since launching its new strategy in 2011 moves hailed by the FCA.
“The group recognises that its oversight of these particular schemes during the period in question was inadequate and apologises to its customers for the impact that they may have had,” he said.
“We are determined to ensure that any customer impacts are dealt with quickly and fully.”