Lloyds Banking Group facing fine over target-driven bonuses

TAXPAYER-BACKED Lloyds Banking Group is facing a potential fine as it emerged that the City watchdog was investigating the financial giant over sales 
bonuses paid to frontline staff.

The Financial Services Authority (FSA) referred the 40 per cent state-owned lender to its enforcement division following a review of 22 firms’ financial incentive schemes.

While 20 had features that increased the risk of mis-selling, Lloyds’ failings were “so serious” it was referred for further investigation and could ultimately face a penalty.

A statement from Lloyds Banking Group, which owns Bank of Scotland, said: “The group continuously reviews its policies and processes and, from the start of this year, we have made significant changes to our incentive schemes.”

The development came shortly after the FSA announced that it would look to introduce new rules if the sector did not address the use of incentive schemes, which it said were driving staff to mis-sell products in order to receive a bonus.

With the industry already paying out £9 billion in redress to customers mis-sold payment protection insurance (PPI), the regulator said the review had uncovered a range of serious failings.

The regulator said practices included a “first past the post” system, under which the first 21 sales staff to reach a target could earn a “super bonus” of £10,000.

And it found that basic salaries for staff at one firm could move up or down by more than £10,000 per year, depending on how much they sold.

Another firm excessively incentivised one product over another – despite claiming to offer impartial advice – meaning there was a clear risk that its advisers would sell the product that earned them more money.

FSA managing director Martin Wheatley, who will become chief of the Financial Conduct Authority when it takes control of financial regulation next year, said: “What we found is not pretty. Most of the incentive schemes we looked at were likely to drive people to mis-sell in order to meet targets and receive a bonus, and these risks were not being properly 
managed.”

In a speech to senior bankers, compliance officers and trade groups, Mr Wheatley said cultural change was needed and chief executives were ultimately accountable for the way their staff are incentivised.

He said: “We, as the regulator, intend to change this culture of viewing customers simply as sales targets and I am going to be personally involved in getting this right.”

Mr Wheatley said many of the recent mis-selling scandals had “dysfunctional incentive schemes” at the root of their problems, with PPI being the main one. The British Bankers’ Association said its members were putting the emphasis back on customers, with a range of individual initiatives and products.