FCA finds Advisors Mis-Sold Lloyds PPI due to Incentive Failings

December 12, 2013

The Financial Conduct Authority has found that sales advisors mis-sold Lloyds PPI due to serious failings in the company´s incentive program.

An investigation by the Financial Conduct Authority (FCA) has found that Lloyds TSB, the Halifax Bank and the Bank of Scotland – all part of the Lloyds Banking Group – used inadequate systems and controls to monitor the selling of payment protection insurance (PPI), and that inappropriate incentive schemes were introduced with the result that sales advisors mis-sold Lloyds PPI to their customers.

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 1st January 2010 and 31st March 2012. Sales advisors were incentivised through variable base salaries, individual and team bonuses and one-off payments and prizes, or demoted if sales targets were consistently missed.

Due to the pressure to deliver sales, staff systematically mis-sold Lloyds PPI. An internal investigation prior to the one conducted by the FCA found that seven out of ten advisers at Lloyds TSB and three out of ten advisors at the Halifax Bank still received their monthly bonus, even though a high proportion of sales were found to be unsuitable. In one instance, an adviser had mis-sold Lloyds PPI to himself, his wife and a colleague to prevent himself from being demoted.

The FCA´s investigation found further evidence that sales´ advisors mis-sold Lloyds PPI. It was discovered that 229 advisers at Lloyds TSB received a bonus even when all of their assessed sales were deemed unsuitable or potentially unsuitable; and that 30 advisers received a bonus in the same circumstances on more the one occasion. The FCA concluded that the issues arose because the sales managers – who were responsible for ensuring compliant practice by the sales advisers – also had their own performance measured against sales targets.

Commenting on the findings of the investigation, Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “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 FCA issued a fine of £28,038,800 to the Lloyds Banking Group for the failings which resulted in mis-sold Lloyds PPI – the second largest fine ever imposed by the FCA on a retail operation.