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Customers do not need to take any action at this stage to be included in the review and they will be contacted by the firm in due course. It is not yet possible to say how much redress will be paid until the firms have identified how many customers are affected. The FCA expects all financial incentive schemes to be designed carefully with good customer outcomes in mind, and the risks they pose must be identified and managed properly.īoth firms have agreed to carry out a review of higher risk advisers’ sales and pay redress where unsuitable sales took place.
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The FCA has an objective to protect consumers and the changes made by the firms since the investigation will help ensure their customers are treated better in future. The firms’ previous disciplinary record, including an FSA fine on Lloyds TSB Bank plc for the unsuitable sale of bonds in 2003 caused in part by the general pressure to meet sales targets.The previous regulator, the FSA, had warned about the use of poorly managed incentive schemes over a number of years and.The FCA increased the fine by 10 per cent because: This created a significant risk that advisers would maintain or increase their salaries, and earn bonuses, by selling products to customers that they did not need or want. The FCA found that both firms had higher risk features in their advisers’ financial incentive schemes which were not properly controlled. "Both Lloyds TSB and Bank of Scotland have made substantial changes, and the reviews of sales and the redress now being made should right many of these wrongs." "Because there have been numerous warnings to the industry about the importance of managing incentives schemes, and because Lloyds TSB had been fined in 2003 for unsuitable sales of bonds, we have increased the fine by ten per cent. "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 review of incentive schemes that we published last year makes it quite clear that this is something to which we expect all firms to adhere. 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 findings do not make pleasant reading. Tracey McDermott, the FCA’s director of enforcement and financial crime, commented:
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In one instance an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted. The incentive schemes 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. This is the largest ever fine imposed by the FCA, or its predecessor the Financial Services Authority (FSA), for retail conduct failings. The failings affected branches of Lloyds TSB, Bank of Scotland and Halifax (which is part of Bank of Scotland). The Financial Conduct Authority (FCA) has fined Lloyds TSB Bank plc and Bank of Scotland plc, both part of Lloyds Banking Group (LBG), £28,038,800 for serious failings in their controls over sales incentive schemes.