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Another bad day in the history of bank mis-selling


It’s another bad day in the sorry history of bank mis-selling. This time, a record fine of £28,038,844 has been dished out to Lloyds Banking Group firms for serious sales incentive failings. How did we get to the position where it takes a regulator, and not those in charge of a bank, to recognise that there was a significant risk that advisers would sell products to customers that the customer did not need or want in an attempt to reach salary and bonus incentive thresholds? I know the days of Captain George Mainwaring, the Dad’s Army local bank manager are long gone, but even I can remember the times when customers trusted banks because banks sold products to customers based on a customer’s needs and circumstances, not the banks needs and circumstances.

What does the postman think?

The detail in the Financial Conduct Authority [FCA] decision notice is embarrassing enough – I wonder what the postman thinks as he puts my copy of the “Chartered Banker” magazine through my door every month – but the list of factors that aggravated the breach make the wretched episode even more disconcerting.

Should the Banks have known better?

As the FCA states, the Authority has for many years been warning firms of the need to manage and control risks to customers arising from financial incentives given to sales staff, in particular in publications relating to the Authority’s work on Treating Customers Fairly and payment protection insurance. The FCA lists seven publications that it suggests should put any bank on notice of its intentions. These are:

  • ‘Treating customers fairly – building on progress’ (July 2005)
  • ‘The sale of payment protection insurance – results of thematic work’ (November 2005)
  • ‘The sale of critical illness cover: results of thematic work’ (May 2006)
  • ‘Treating customers fairly – culture’ (July 2007)
  • Liverpool Victoria Banking Services – Final Notice (July 2008)
  • Alliance & Leicester – Final Notice (October 2008)

What will happen next?

The decision notice shows that in the relevant period, the individual banking divisions sold over one million products to over six hundred thousand customers. There is little doubt in my mind that any customer who has bought an investment or protection product from Lloyds Banking Group over the last few years will now seek professional help to assess whether the product was suitable
for their needs and circumstances or not. If not, I guess the Lloyds Bank Group redress bill will see another hike.

The future

Of course, regulators will be interested in whether this fine will alter banks future behaviour. I hope it does, but as recently as last week I was telephoned by my bank who wanted to arrange life assurance without any assessment of my needs and circumstances. The discussion was solely based on a single product I had with the bank and the script made no attempt to find out any other facts about life assurance I might have arranged with other product providers to cover the single product or my current circumstances. Based on my experience, I suspect there is still a long way to go before banks put customers first – the journey to rebuild customer trust is going to be a long one!

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