Firms were warned to expect that the Financial Conduct Authority (FCA) would be a tougher regulator than its predecessor, and in December 2013 Lloyds Banking Group was fined just over £28 million by the FCA, which represents the largest fine ever handed out for retail banking conduct issues.

The FCA found that Lloyds sales staff were heavily incentivised to sell financial products, regardless of whether the customer needed them. The FCA found evidence of bonus payments being made that were as large as 140% of salary, while salespeople could also be demoted or promoted by up to three salary tiers according to their sales performance. Bonuses were regularly paid to staff that had sales judged as unsuitable by Lloyds’ compliance monitoring programme.

This remuneration system was judged to represent a breach of FCA Principle 3, which reads: “A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.”

The failings concerned sales made in branches of Lloyds TSB, Halifax and Bank of Scotland.

The fine covers sales of investments, such as stocks & shares ISAs; and insurance, such as critical illness and income protection, made in the period from January 2010 to March 2012, and while this is outside of the period in which Lloyds engaged in widespread mis-selling of payment protection insurance (PPI), some of the problems associated with PPI sales were again evident here. As with PPI, staff could see their salaries alter dramatically according to their sales performance, and large numbers of policies were sold to customers who did not need them. Lloyds has been forced to set aside over £8 billion in compensation for mis-sold PPI.

The FCA reported that one salesperson sold products to himself, his wife and a colleague simply because he feared being demoted.

Tracey McDermott, the FCA’s director of enforcement and financial crime, commented: “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.”

This was not the first time that criticisms of this nature had been made of Lloyds. The fine on this occasion was increased by 10% as, back in 2003; Lloyds TSB was fined £1.9 million over the sale of unsuitable investment bonds, where the incentive structure in place for sales staff played a significant role in the mis-selling.

Lloyds will now review sales made between 2010 and 2012 and contact customers to make offers of compensation where appropriate. Customers do not need to wait for the outcome of the review though, and are free to make a complaint to Lloyds if they believe their policy was unsuitable.

Ms McDermott acknowledged that changes had been made at Lloyds by saying: “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.” However, the BBC website’s report on the story is now accompanied by a number of comments from readers who say that a pressurised sales environment still exists at Lloyds.