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Lloyds fine 'shows complete failure of conduct regulation'

The record £28 million fine on Lloyds for linking salaries to sales targets shows the "complete failure of conduct regulation", the new chairman of the Financial Services Consumer Panel has said.

Sue Lewis said the panel was also in favour of "naming and shaming" senior management and an inquest into the effectiveness of non-executive directors at banks, following the revelations of the reward structures at Lloyds TSB and Bank of Scotland between 2010 and 2012, where employees risked losing up to 50% of their salary for missing targets.

The Herald reported in March that a new pay structure linked to customer service only arrived at Lloyds on April 1, the day the Financial Conduct Authority replaced the former Financial Services Authority.

The FSA had warned in July 2005 that it was concerned about "the way staff are remunerated", in November 2005 it said inducements and targets could encourage mis-selling "in some small and medium-sized firms", and in July 2007 it said firms had "failed to recognise the influence of incentive schemes". Lloyds meanwhile had promised in September 2003, after being slapped with a then record £1.9m fine for mis-selling precipice bonds in its branches: "The message we're sending is we have put our house in order and we are confident there won't be a repeat of this."

Ms Lewis commented: "You can't blame the guys sitting in the branches, they have got families to feed and were under huge incentives to sell rubbish, or sell products that weren't suitable." She added: "I think there is a genuine will in the FCA for heads on spikes ... They have acted reasonably quickly but it does show that the whole culture of banks is completely rotten, it works against the interests of consumers."

She said there was a need to find out "what the boards of banks talk about".

Earlier in the week the panel produced a hard-hitting report on annuities, which revealed how this year's financial advice reforms, which have forced Lloyds and other banks to stop selling products in branches, are now threatening a potential new scandal.

The outlawing of commissions in paying for advice has driven more consumers to buying without advice, notably online - the Association of British Insurers has reported a 61% rise in people buying annuities with no advice this year - but commissions are allowed for "non-advised sales" of annuities, without prior disclosure. The report revealed hidden charges ranging from 1.5% to 6% and a spread of up to £1000 in commission rates on the same £50,000 pension pot.

It found online "annuity specialists" were able to offer a "free" service for broking, often when they merely referred the customer on, yet were effectively being paid out of the pension pot. Direct buyers were paying for no advice, and no consumer protection.

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