‘Serious risks’ of further financial services mis-selling, MPs warn

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There are “serious risks” of further mis-selling scandals in the financial industry, MPs have warned.The Public Accounts Committee (PAC) said there has been a recent surge in complaints about “packaged” accounts, where consumers generally pay a monthly fee in return for a bundle of products and services included with a current account. The committee also warned that pension freedoms introduced last year, which give people aged over 55 more choice over how to use their retirement pots, could be a “potential trigger” for future mis-selling on a mass scale.

The PAC warned that more needs to be done to tackle the culture of firms, and highlighted the “failure” of regulation which has led to management companies making up to £5 billion from payment protection (PPI) insurance payouts.”The widespread mis-selling of PPI is a vivid demonstration of the risks facing consumers in the financial services market,” said Meg Hillier, chair of the PAC.”The fall-out is still with us. Many people have waited years for a decision on compensation and, because of the way they have pursued their claims, even then they may not receive the full amount. Serious risks of further mis-selling remain.”The PAC urged regulator the Financial Conduct Authority and the Treasury to take stronger action to find out how much mis-selling is still happening and identify how best to prevent it.

The committee said in a report that more than 12 million consumers were mis-sold PPI and firms have paid over £22 billion in compensation to them since April 2011.

 


LLOYDS MISSELLING

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Lloyds fined £28m for ‘sell or be demoted’ incentive plan

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Lloyds Banking Group has been fined a record £28m by the Financial Conduct Authority for putting staff under so much pressure to sell some even bought the products to save themselves from the axe.

The FCA said that incentive schemes created a “culture of mis-selling” between 2010 and 2012 where sales staff across Lloyds, Bank of Scotland and Halifax were put under pressure to hit targets to avoid being demoted, rather than focus on what consumers may need or want.

Taxpayer-backed Lloyds has already set aside more that £8bn to compensate victims of PPI – Payment Protection Insurance mis-selling – by far the largest provision made by any British bank. The regulator’s investigation focused on Lloyds’ sale of investment products, such as share ISAs and income protection products between January 1, 2010 and March 31, 2012. Sales were offered “champagne” or “grand in your hand” bonuses for hitting targets. The FCA said the worst case it had seen was “evidence that one Lloyds staff member sold protection products to himself, his wife and a colleague to prevent himself from being demoted”.

The regulator said competency standards were “seriously flawed” and advisers still received a monthly bonus even though a high proportion of sales was found by Lloyds to be unsuitable or potentially unsuitable.

For a Lloyds TSB adviser on a mid-level salary, not hitting 90pc of their target over a period of nine months could see their base annual salary drop from £33,706 to £25,927; and if they were demoted by two levels their base pay would drop to £18,189 – almost a 50pc salary cut, the FCA said.

It’s the ninth biggest fine ever issued by the City regulator and the largest ever for a breach of retail regulations.

Tracey McDermott, FCA enforcement director, 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 consumer at heart.

“The review of incentive scheme 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 said that Lloyds was handed its biggest ever retail fine because former regulator, the Financial Services Authority, had warned about the use of poorly managed incentive schemes for a number of years.

Lloyds TSB had also been handed a fine for the unsuitable sale of bonds in 2003 caused in part by the general pressure to meet sales targets.

The FCA said during the period of 1 January 2010 and 31 March 2012 Lloyds TSB advisers sold more than 630,000 products to over 399,000 customers, who invested about £1.2bn and paid £71m in protection premiums. In comparison, Halifax sold over just under half 380,000 products to more than 239,000 customers, who invested around £888m and paid £38m in protection premiums.

While Bank of Scotland advisers sold 84,000 products to over 54,000 customers, who invested around £170m and paid £9m in protection premiums.

Lloyds settled with the regulator at an early stage and therefore qualified for a 20pc discount. Without the discount the total fine would have been £35m, the FCA said.

Lloyds today “apologised” for any inconvenience it may have caused. There was no comment from Antonio Horta Osorio, the chief executive, who picked up a £2.3m bonus for 2012 last month.

Today’s fine follows media campaigns last year which revealed the pressure sales staff at Lloyds were under. One Halifax manager picked up £39,000 for three months’ sales over the first three months of 2013. The windfall – which almost equalled his entire salary – was so big it had to be signed off by Halifax chief David Nicholson.

In September last year Lloyds head of retail Alison Brittain insisted she would “bash the bonus bullies” and change the sales culture. But this Spring staff claimed nothing had changed and pressure was intense as ever.

One told The Sun: “Sales are now called ‘needs met’. It’s compulsory to ‘mid-brief’ every customer – to leave the interview and get a manager to check we have ‘maxed out sales’. It is also now compulsory to cold call a minimum of 25 customers every week. If we don’t, we are threatened with a ‘Performance Plan’.”

The FCA refused to say whether it was carrying out any separate investigations into Lloyds today. The bank withdrew packaged accounts at the start of this year saying it had to “harmonise” the sales process. They have not come back on sale since.

Richard Lloyd, executive director of Which? today said: “It’s right that in this case the Financial Conduct Authority is taking strong action by imposing their largest fine.

“This should send a clear message to the banking industry that mis-selling won’t be tolerated and that customers, not sales, must come first.

“We now need to see the new professional banking standards body deliver a big change in banking culture right across the industry, so that front line staff and their managers are not incentivised to sell products that customers don’t want or need.”

 

Read More: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10510228/Lloyds-fined-28m-for-sell-or-be-demoted-incentive-plan.html

 


BARCLAYS MISSELLING

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Barclays increases PPI and swaps mis-selling provisions

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Barclays has increased the provisions to cover two mis-selling scandals by another £1bn.

It relates to the mis-selling of interest rate hedging products sold to small firms, and payment protection insurance (PPI) schemes.

Following a review, the bank said total provisions for the scandal involving interest rate swaps were now £850m, and £2.6bn for the PPI schemes.

The figure comes ahead of the bank’s full-year results due on 12 February.

Review of sales

The Financial Services Authority (FSA) last week ordered the UK’s major banks – Barclays, Royal Bank of Scotland, Lloyds, and HSBC – to review all their sales of interest rate hedging products, and provide redress where mis-selling occurred.

The products were offered to thousands of small firms – including pub owners, haulage firms, care-home operators and vets – when they asked their bank for a loan.

The borrowers were told that the product would provide an “insurance” or “hedge” against the risk of interest rates rising. But with interest rates having instead fallen since 2008 to historic lows, many of these businesses discovered they were sitting on tens of thousands of pounds in losses.

The FSA said that around 40,000 interest rate hedging products were sold since December 2001 to “non-sophisticated” customers, to protect against interest rate rises or limit interest rate fluctuations.

In its review of 173 such sales across the four banks, the FSA said it found that more than 90% did not comply with one or more of its regulatory requirements.

Barclays increased its provision by £400m, nearly doubling the total amount it has set aside for compensation.

Barclays chief executive Antony Jenkins later told the parliamentary committee on banking standards that compensation would be paid as quickly as possible. He said that this would be an easier process than redress for PPI, as more information about those affected was available.

He also said that the payments meant staff would get smaller bonuses as a result.

The FSA has called on banks to deal with the issue within six months, although some cases could take longer.

Mis-selling

The bank has increased its PPI provision by £600m. The total amount of £2.6bn was still well below the £5.3bn set aside by Lloyds Banking Group.

Financial institutions sold PPI alongside loans, credit cards and mortgages. It was supposed to cover loan repayments if policyholders were ill, had an accident, or lost their job. However, the policies were mis-sold to large numbers of people who would never have qualified for or needed to make a claim. Some did not even know they were paying for PPI.

Mr Jenkins told MPs that PPI was mis-sold at Barclaycard – which he ran – up to 2009, when it stopped selling the product.

Millions of people have now received compensation from banks, receiving a typical payment of nearly £3,000. The total bill facing UK institutions for PPI stands at approaching £14bn, but it is expected to go higher.

Some 11,000 complaints a week are being made to the financial ombudsman in cases which are unresolved by the banks.

With their finances under pressure, the banks have asked the FSA to impose a deadline on complaints, but the regulator has not agreed to one.

But Richard Lloyd, executive director of consumer group Which?, said: “The banks should be proactively contacting their customers and making sure it is as easy as possible for those with a legitimate claim to get their money back, without any hassle.”

Barclays’ latest provisions announcement comes just a week before Mr Jenkins is expected to unveil a blueprint for overhauling the bank’s culture.

Its finance director Chris Lucas announced over the weekend that he was stepping down.

The bank has already been handed a record £290m fine by UK and US regulators related to a separate Libor-rigging scandal.

 

Read More: http://www.bbc.co.uk/news/business-21334145


Lloyds and Halifax mis-selling: who will get compensation?

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Those who bought Isas and insurance from Lloyds TSB, Bank of Scotland or Halifax between 2010 and 2012 could be in line for compensation.

 

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Thousands of customers could be in line for compensation after Lloyds Banking Group was hit with a record fine for pressuring staff to sell products that customers didn’t need or didn’t want.

The early indication is that nearly 100,000 people could receive money.

The Financial Conduct Authority said that incentive schemes created a failure in its sales process between 1 January 2010 and 31 March 2012 where staff across the group’s high street brands – Lloyds TSB, Bank of Scotland and Halifax – were put under pressure to hit targets to avoid being demoted.

It said such incentive plans “can create a culture of mis-selling”. Lloyds must now make recompense.

Which are the products?

The regulator’s investigation focused on Lloyds’ sale of protection products and investment products between January 2010 and March 2012.

Protection products included critical illness, income protection, life cover and “expenses on death” cover. Investments included personal investment plans, Individual Savings Accounts (Isas) and Open Ended Investment Companies (Oeics).

The regulator said the banks persuaded customers to take out more protection cover than they needed.

It could also be that customers were urged to invest in funds when this wasn’t suitable for them.

How were the salesmen incentivised? 

During the two year period salesmen at all three firms earned an average commission of £600 for every protection policy sold and £60 in commission for regular premium investment plans sold.

One-off investments into a new unit trust, Oeic, or Isa paid £260 in commission.

The only product which earned more commission than the protection products were lump sum investment bonds which earned an average £1,300.

The FCA’s investigation documents also revealed that the salesmen were offered “champagne” or “grand in your hand” bonuses for hitting their sales targets. Advisers were given big pay rises for towing the party line by recommending the protection products. Salesmen who missed their targets were not given bonuses and were even threatened with demotion.

One “adviser” even sold protection products to himself, his wife and a colleague to prevent himself from being demoted.

In Lloyds TSB, advisers were typically paid a salary of between £18,000 and £73,000, based on six tiers. Most were paid £34,000 or £47,000 – tiers three and four. Failure to make enough sales would see them slide down the tiers.

How many people are due compensation? 

It is unclear exactly how many people are in line for compensation. Lloyds will act as judge and jury by undertaking an internal review to establish who exactly should be compensated. It has said it will prioritise 11,000 cases where compensation is most likely.

That is tiny compared with the total of around 692,000 customers who bought these products over that period. Lloyds said the FCA’s investigation of a sample found compensation was due in 14pc of cases, which would equate to around 97,000 people.

The FCA said salesmen at Lloyds TSB sold over 630,000 products to over 399,000 customers over the two year period. Halifax advisers sold over 380,000 products to over 239,000 customers, while Bank of Scotland salesmen sold over 84,000 products to more than 54,000 customers.

Millions of pounds were spent on these products. At Lloyds, customers invested £1.2bn and paid £71m in protection premiums. At Halifax, around £888m was invested and paid £38m in protection premiums, while £170m was put into protection products and £9m into protection premiums.

The FCA acknowledged that rises in the stock market may mean that “customer detriment” may be low. Any compensation on the investment products may therefore be lower as a result.

Read more: http://www.telegraph.co.uk/finance/personalfinance/bank-accounts/10510649/Lloyds-and-Halifax-mis-selling-who-will-get-compensation.html

 

 


135,000 families face endowment shortfall

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by CLARE KITCHEN, Daily Mail

One of the big banks yesterday admitted that most of its endowment mortgage holders face a bill for thousands of pounds when their policies mature.

Lloyds TSB said its policies are performing so badly that half of the 270,000 it has sold are at serious risk of leaving owners in debt.

Another 124,000 are estimated to have a chance of leaving a shortfall, while only 10,800 are on track to cover the mortgage.

It is thought to be the worst example of the problems surrounding endowments, many of which were mis-sold to home-buyers by salesmen eager to bump up their salaries with commissions.

The huge numbers of Britons mis-sold endowment mortgages could cost the life assurance industry more than £1billion in compensation, the latest estimates say.

Lloyds TSB chose to reveal the scale of its problems after the Financial Services Authority stipulated that all insurance companies must let customers know the state of their policies by the end of this month.

It has shown that six million of the ten million endowments in Britain are underperforming and may not cover the cost of the loan.

Lloyds TSB blamed ‘changes in the economic environment’ but claimed that many of the policies were new and had not had time to benefit from long-term exposure to the stock market.

The scale of its problem has shocked mortgage experts. It compares with Scottish Amicable, where just under half of the policies are definitely on course.

Scottish Amicable has written to virtually all 817,000 policyholders and so far just two per cent of endowments are seriously at risk, while 49 per cent are risky and the rest are on course to cover the loan.

In contrast, all of Standard Life’s 1.6million policies are on track. The company has promised to stand by all policies and top up any shortfalls provided future investment returns are at least six per cent a year.

A spokesman for the Financial Services Authority said policyholders should not panic as many under-performing policies could improve.

‘Our advice is not to take this as a final verdict on your policy,’ he added. ‘The market goes up and down, so policies that are not doing so well can improve. But people should still be aware there is risk.

‘They could either take out another policy to top up the shortfall or switch to a repayment mortgage.’

Some 300,000 people are estimated to be entitled to compensation from the mis-selling scandal, according to the Financial Ombudsman Service, which is receiving 400 complaints a week and expects up to 30,000.

It generally sees about one complaint in ten after policyholders fail to get satisfaction from the company which sold them the mortgage.

On average, it is finding in favour of the policyholder in about half of the complaints it investigates.

The FSA says the compensation awarded is on average £3,331.

The largest group of successful complaints are by people who were not properly briefed about the risks of investing in a policy which is linked to the stock market.

Read more: http://www.dailymail.co.uk/news/article-50996/135-000-families-face-endowment-shortfall.html#ixzz2l0wvCYVS


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