Request a Demo Today

Release Date: 11th December 2013

To access the original FCA document, click here.


Lloyds TSB Bank plc and Bank of Scotland plc, collectively referred to as “the Firms,” were fined £28,038,800 by the Financial Conduct Authority (FCA) for breaching Principle 3 of the Authority’s Principles for Businesses. The fine was reduced by 20% due to the Firms’ early agreement to settle during the investigation; otherwise, it would have been £35,048,500.

The penalty was imposed because of serious failings in the Firms’ systems and controls over financial incentives for sales staff, which significantly influenced their sales practices. Between January 2010 and March 2012, these incentive structures led to a culture where staff were potentially motivated to sell financial products that customers did not need or want, just to meet sales targets and receive substantial bonuses. This risk was exacerbated by higher risk features in the incentive schemes, such as variable salaries, large bonus thresholds, and options for early bonus payments, which could lead to future deficits if targets were not met.

Despite having some controls in place, the Firms failed to focus these controls adequately on the high-risk features of the incentive schemes. The sales incentives strongly biassed advisers towards selling protection products, and there were significant lapses in ensuring that these sales were suitable for customers. The FCA’s review found that a substantial number of sales were unsuitable or potentially unsuitable, despite advisers receiving bonuses.

The FCA criticised the Firms for poor governance and oversight of the incentive schemes. The senior management failed to recognise the importance of these schemes as a key risk area and to provide robust oversight. This lack of adequate management led to increased risks to customers, with potential financial losses due to unsuitable product sales.

This case underscores the importance for financial institutions to maintain strong governance, risk management, and controls around sales practices and financial incentives. Firms must ensure that their incentive schemes do not undermine the need to treat customers fairly and should implement effective monitoring and risk management practices to prevent mis-selling and protect customer interests.

Back to the Dear CEO letter archives.