The People’s Champion: Lloyds’ £7m discount puts a cloud over City watchdog’s fines


Personal Finance Editor

The City watchdog this week handed out its largest fine for what it calls “retail conduct failings”. In simple language that means mis-selling or misleading consumers.

The fine was slapped on Lloyds, the partly taxpayer-owned banking group. Why? Because sales incentive schemes at Lloyds TSB, Halifax and Bank of Scotland 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 shocking example uncovered by the regulator an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted. That’s madness. And it’s fitting that the bank was slapped with a fine of £35,048,566.

Only it didn’t have to pay all of the fine. In fact Lloyds paid just £28,038,800. That’s because the Financial Conduct Authority allows finance firms money off if they “agree to settle at an early stage”.

So Lloyds saved itself £7m – 20 per cent of the total fine – by co-operating with the watchdog. In fact if Lloyds hadn’t already been censured by the FCA this year for mis-selling, it could have got a discount of 30 per cent, as many other misbehaving financial companies have this year.

Take JPMorgan Chase Bank. It was hit by the UK regulator’s biggest fine of £196,586,000 in September. To remind you, the bank was fined over the “London Whale” scandal, in which the trader ran up $6bn of losses through reckless derivatives trading.

But the bank didn’t pay all the fine. It got a generous 30 per cent discount to reduce the cost to £137,610,000. By co-operating with the investigation JPMorgan cleverly saved itself almost £60m.

Looking at other high-profile fines this year the pattern is repeated. Rabobank saved itself £45m in October when it cut its fine for rigging LIBOR from £150m to £105m. ICAP, which was part of the same LIBOR scandal, reduced its fine from £20m to £14m. And so it goes on.

To date this year the City watchdog has issued fines of around £472m. If all the companies punished had got the discount, it would mean rule-breaking finance firms would have saved themselves roughly £202m in 2013.

Even taking into account that repeat offenders such as Lloyds may only have got a discount of 20 per cent, while others may have got no discount at all, the total amount saved by the rule-breakers for co-operating with the authorities is still likely to be approaching the £200m mark.

That’s a hell of a lot of money that could be spent on lots of useful purposes. It could be used to help people struggling with debt, for instance. Or those forced to sleep on the streets after losing their homes.

Instead it’s presumably being used, in part, to fund the big bonuses and champagne lifestyle of bankers responsible for mis-selling and dodgy dealings.

That, I believe, is madness.

* The People’s Champion: Millions shouldn’t have to borrow to heat their homes

* The People’s Champion: Kids are still being bombarded by payday lending commercials  

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

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