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25/09/2003
Lloyds TSB fined £1.9m for 'unsuitable sales'
The Financial Services Authority (FSA) has today fined Lloyds TSB Bank plc (LTSB) £1.9 million for a number of "unsuitable sales" of a high-income equity-linked bond through the LTSB branch network.
On top of the fine, LTSB will pay compensation of approximately £98 million in respect of 22,500 sales.
The fine relates to some sales of the Extra Income and Growth Plan (EIGP) in four tranches between October 2000 and July 2001. The EIGP was a new product with a medium/high risk rating designed by Scottish Widows Group.
LTSB acquired Scottish Widows in March 2000 and the EIGP was distributed through the LTSB branch network. In total, some 51,000 policies were sold.
Andrew Procter, FSA Director of Enforcement, said: "Firms must ensure that the products they recommend are suitable for an investor's individual circumstances and that any potentially unsuitable sales are identified. The procedure and controls to achieve this need to be especially rigorous where medium or high risk products are being offered to inexperienced investors."
LTSB did not have in place "sufficiently rigorous procedures and controls" for considering all of the issues surrounding the selling of the EIGP, the FSA found. It did not emphasise sufficiently to the LTSB branch network's financial consultants the need for investors, when buying the EIGP, to have "appropriately balanced portfolios" and the need for investors to retain sufficient liquid resources.
Additionally, LTSB did not ensure an adequate balance between the general pressures of its sales targets and the suitability of EIGP for investors and "failed to analyse the reasons" for the high level of sales through the LTSB branch network of Tranche 1 of the EIGP
As a result, some 22,500 EIGP sales - 44% of the total number of policies sold - were made through the LTSB branch network to investors when it was an "unsuitable product for them".
In the light of these failings specifically, LTSB has agreed to pay compensation in respect of: approximately 16,500 sales to investors who had not, before their purchase of the EIGP, purchased an equity related investment product and who purchased the EIGP with more than 20% of their financial assets; and approximately 6,000 sales to other investors who had, before their purchase of the EIGP, purchased one or more other equity related investment products and who purchased the EIGP with more than 35% of their financial assets.
In deciding the level of penalty to be imposed, the FSA has taken into account that, while "the bank's failings in this case were serious", LTSB has co-operated fully since the identification of these issues by the FSA in October 2001. It has conducted a comprehensive investigation into its sales of the EIGP and has agreed to pay the compensation as set out above.
LTSB will be contacting customers to advise them of how today's announcement will affect them. The bank has also established a consumer information line to answer any immediate questions that its investors have on 0800 328 4761.
(gmcg)
On top of the fine, LTSB will pay compensation of approximately £98 million in respect of 22,500 sales.
The fine relates to some sales of the Extra Income and Growth Plan (EIGP) in four tranches between October 2000 and July 2001. The EIGP was a new product with a medium/high risk rating designed by Scottish Widows Group.
LTSB acquired Scottish Widows in March 2000 and the EIGP was distributed through the LTSB branch network. In total, some 51,000 policies were sold.
Andrew Procter, FSA Director of Enforcement, said: "Firms must ensure that the products they recommend are suitable for an investor's individual circumstances and that any potentially unsuitable sales are identified. The procedure and controls to achieve this need to be especially rigorous where medium or high risk products are being offered to inexperienced investors."
LTSB did not have in place "sufficiently rigorous procedures and controls" for considering all of the issues surrounding the selling of the EIGP, the FSA found. It did not emphasise sufficiently to the LTSB branch network's financial consultants the need for investors, when buying the EIGP, to have "appropriately balanced portfolios" and the need for investors to retain sufficient liquid resources.
Additionally, LTSB did not ensure an adequate balance between the general pressures of its sales targets and the suitability of EIGP for investors and "failed to analyse the reasons" for the high level of sales through the LTSB branch network of Tranche 1 of the EIGP
As a result, some 22,500 EIGP sales - 44% of the total number of policies sold - were made through the LTSB branch network to investors when it was an "unsuitable product for them".
In the light of these failings specifically, LTSB has agreed to pay compensation in respect of: approximately 16,500 sales to investors who had not, before their purchase of the EIGP, purchased an equity related investment product and who purchased the EIGP with more than 20% of their financial assets; and approximately 6,000 sales to other investors who had, before their purchase of the EIGP, purchased one or more other equity related investment products and who purchased the EIGP with more than 35% of their financial assets.
In deciding the level of penalty to be imposed, the FSA has taken into account that, while "the bank's failings in this case were serious", LTSB has co-operated fully since the identification of these issues by the FSA in October 2001. It has conducted a comprehensive investigation into its sales of the EIGP and has agreed to pay the compensation as set out above.
LTSB will be contacting customers to advise them of how today's announcement will affect them. The bank has also established a consumer information line to answer any immediate questions that its investors have on 0800 328 4761.
(gmcg)
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