The investigation into the Lloyds group was announced today by the financial regulator, which has promised to look at the whole financial industry for the mis-selling of products. The FSA announced that it planned to implement tough new controls to prevent further mis-selling after it found that 90 per cent of the companies it surveyed had “risky” sales incentive schemes.
The FSA said in a consultation paper today that “Twenty out of the 22 firms we assessed had features in their incentive schemes that increased the risk of mis-selling.” It also said that “one firm” had been referred to its Enforcement and Financial Crime Division. It has now emerged that this company is the Lloyds Banking Group. Lloyds is being investigated because it designed incentivised schemes that encouraged its staff to sell its products regardless of risk to the customers, or even the bank itself due to outstanding debt.
In a statement Lloyds said “it was working closely” with the FSA but in the meantime had made “significant changes to our incentive schemes”.
Martin Wheatley, director of the FSA, said that the “bonus-based approach” had fuelled the plethora of mis-selling scandals that have cost the industry £9bn of compensation over 20 years.
“Incentive schemes on Payment Protection Insurance (PPI) were rotten to the core and made a bad problem worse,” he said. “If we think in a year to 18 months’ the industry has not cleaned up its act, then we will revisit it in a much more intrusive way.”
“Bank staff used to offer impartial advice, tailored to customers’ needs. Some time ago, this changed – financial institutions have changed their view of consumers from someone to serve to someone to sell to. We, as the regulator, intend to change this culture.”
This is just the latest of an endless stream of scandals that have plagued the British banking sector of late.