Lloyds: where toxic bonus targets made staff mis-sell to themselves

Regulator levies record £28m fine for scheme that encouraged aggressive sales

The banking industry's reputation suffered another blow yesterday as City watchdogs fined Lloyds Banking Group a record £28m for operating a toxic culture that led one desperate salesman to mis-sell policies to himself, his wife and a colleague to avoid automatic demotion.

His fear was motivated by the fact that his salary would fall from £34,000 to £26,000 if he were demoted by one tier from his post as a middle-ranking adviser – a 23 per cent pay cut. He sold life assurance, critical illness and expenses on death cover to himself and his wife even though they couldn't afford the premiums. He also sold a critical illness policy to a colleague, which was subsequently cancelled.

The sales were pushed through in the final week of one of the bank's quarters. Demotion for staff who missed targets was automatic across the three banks during the period regulators investigated from the start of 2010 until the end of March 2012.

Sales staff were also encouraged to win regular "champagne" bonuses paid every quarter to top performers.

The Financial Conduct Authority found that neither Halifax, Lloyds TSB or Bank of Scotland – all owned by Lloyds Banking Group – kept an eye out for bad sales at the end of a quarter.

Watchdogs described the risks to consumers of being pushed to buy inappropriate insurance products or investments as "acute". It also said the banks "tolerated" poor sales practices and was sharply critical of the fact that even salesmen who were found to have badly advised consumers could still be paid juicy bonuses.

Shockingly, 229 Lloyds TSB advisers got a bonus when all of their sales were classified as "advice fails" in one month. This happened on more than one occasion to 30 of them.

The three Lloyds-owned banks only monitored a tiny proportion of the sales made to check that they were compliant and the pay policies were imposed despite repeated warnings from regulators to steer clear of pay policies that encouraged bad behaviour. Over the period under investigation the banks sold £2.25bn of investment products and took in £118m in protection insurance premiums. As a group, Lloyds was ramping up the pressure as it had told the City it wanted to double customer numbers.

The FSA lambasted a "collective failing of senior management" in its final decision notice.

The bank could consider clawing back bonuses as a result, although yesterday it would only say that "the Remuneration Committee will re-consider deferred awards if appropriate to do so before being released".

Tracy McDermott, the FCA's director of enforcement, 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.

In a statement Lloyds said it accepted the findingsand added: "The Group launched its new strategy in 2011 to fully refocus the business on its customers."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...