Lloyds Banking Group has been fined more that £28million by the Financial Conduct Authority (FCA) for “serious failings” in controls over sales incentive schemes.

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It is the biggest fine ever imposed by the FCA, or its predecessor the Financial Services Authority, in relation to retail banking conduct, with the failings having affected branches of Lloyds TSB, Bank of Scotland and BoS subsidiary Halifax.

The fines to be paid by Lloyds Banking Group in respect of the three brands total £28,038,844. The FCA said that because of “numerous warnings” to the industry about management of incentives schemes, and because Lloyds TSB had been fined in 2003 for unsuitable sales of bonds, it had increased the fine by 10%.

However, by agreeding to settle at an early stage, the group has also qualified for a 20% discount, without which the total fine would have been £35,048,556.

The FCA says the incentive schemes involved a serious risk that sales staff were put under pressure to hit targets to get a bonus or avoid being demoted, rather than to focus on what consumers may need or want.

In one instance an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted.

Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “The findings do not make pleasant reading. 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 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.

“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 FCA found that both firms had higher risk features in their advisers’ financial incentive schemes which were not properly controlled. 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.

Both firms have agreed to carry out a review of higher risk advisers’ sales and pay redress where unsuitable sales took place.

Ms McDermott added: “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.”

The authority said it was not yet possible to say how much redress will be paid until the firms have identified how many customers are affected. 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.

Lloyds today apologised to customers and admitted that its management of incentive schemes was “inadequate”.

It said it had begun contacting customers who had been affected and that it has made major changes to its sales incentive schemes since the issues first emerged in 2011 “to ensure that all its schemes are focused on doing the right things for customers and providing good service”.

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