Lloyds Banking Group Plc (LLOY) is being investigated by a U.K. regulator over how bonuses and other incentives were used to motivate staff to improperly sell some products to consumers, a person familiar with the case said.
The Financial Services Authority referred the bank to its enforcement division for further proceedings, according to the person, who asked not to be identified because the probe is confidential.
An FSA review of 22 firms found that incentive programs for bank staff “were likely to drive people to mis-sell in order to meet targets and receive a bonus, and these risks were not being properly managed,” Martin Wheatley, a managing director of the regulator, said in a speech in London today.
The failings at one firm were “so serious” that they merited further investigation, the FSA said in a statement. That company is Lloyds, said the person.
“We have made significant changes to our incentive schemes,” Lloyds said in a statement. “We reward behaviors that are focused on achieving correct customer outcomes and excellent service as well as monitoring sales to ensure that colleagues have met customer needs appropriately.”
Lloyds has set aside 4.3 billion pounds ($6.8 billion) to compensate customers who were mis-sold payment protection insurance, more than any other U.K. bank. British regulators said last year that consumers may receive as much as 9 billion pounds in compensation as a result of improper sales of PPI.
Toby Parker, a spokesman for the FSA, declined to comment. The probe was reported earlier today by the Financial Times.
Wheatley, is chief executive designate of the Financial Conduct Authority, the regulator that will take over consumer- protection efforts from the FSA next year. The FSA is being abolished as part of a supervisory overhaul in the wake of the financial crisis that saw the nationalization of Northern Rock Plc and bailouts of other lenders.
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