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Record £117m fine for PPI mistakes costs Lloyds bosses £33m in bonuses - including £340k that was going to chief exec Horta-Osorio.

Bosses at Lloyds Banking Group have forfeited nearly £33million in past and future bonuses after the bank was slapped with a record fine of £117million for the mishandling of payment protection insurance complaints.

The fine is the largest ever retail banking penalty imposed by the by the Financial Conduct Authority – other larger charges have related to trading scandals such as Libor benchmark rate-rigging and foreign exchange rate manipulation.

Lloyds apologised to customers affected and said £2.65million worth of bonuses was being withheld from executives as it agreed the settlement with the FCA. That includes a £350,000 bonus that was due to go to Lloyds boss Antonio Horta-Osorio, according to Reuters.

The group bonus pool for this year will be cut by £30million.

The PPI scandal has plagued the banking sector in recent years and in particular Lloyds, which has had to set aside £12billion to pay for a compensation programme, out of a running total of around £24billion for all major banks.

The huge penalty from the City watchdog comes just two months after Clydesdale Bank was fined £20.7million by the FCA after it found serious failings that meant thousands of PPI complaints might have been rejected unfairly.

That fine was at the time the largest imposed by the authority for failings related to PPI, but has been easily surpassed by the new penalty for Lloyds.

The fine relates to a period from March 2012 to May 2013 when the group assessed customer complaints relating to more than 2.3million PPI policies and rejected 37 per cent of those – many of them wrongly.

‘As a result of Lloyds’ misconduct, a significant number of customer complaints were unfairly rejected,’ the FCA said.
Georgina Philippou, acting director of enforcement and market oversight at the FCA said that if trust in financial services is going to be restored following the widespread mis-selling of PPI, then customers need to be confident that their complaints will be treated fairly.

‘The size of the fine today reflects the fact that so many complaints were mishandled by Lloyds,’ she added. ‘Customers who had already been treated unfairly once by being mis-sold PPI were treated unfairly a second time and denied the redress they were owed. Lloyds’ conduct was unacceptable.’

The FCA found that in March 2012, Lloyds issued guidance to complaint handlers that its overriding principle when assessing complaints should be that PPI sales processes ‘were compliant and robust unless told otherwise’.

This resulted in some of them dismissing customers’ personal accounts of what had happened to them during the PPI sale.

In addition, Lloyds did not notify complaint handlers of known failings that had been identified in its PPI sales process.
Some customers were told that their complaint had been ‘fully investigated’ when this was not the case.

Lloyds has now launched a programme to re-review or automatically uphold around 1.2million PPI complaints and set aside a total of £710million to cover any redress due to affected customers, who are being contacted directly.

The group said that following its review, 90 per cent of customers received payment and the remainder will be completed by the end of June.

Chief executive Mr Horta-Osorio said: ‘We made mistakes in our handling of some PPI complaints. I am very sorry for this. We have been working hard with the FCA to ensure all customers receive appropriate redress.

‘That process is now substantially complete. We remain fully committed to improving our operational procedures and ensuring we do the right thing for our customers.’

Complaints about mis-sold PPI halved last year, marking a potentially crucial point in the scandal that has hammered banks and handed windfalls to millions of people.

The number of PPI-related complaints fell to just below 205,000 in 2014 after reaching a record high in 2013, although the Financial Ombudsman Service warned that the continuing ‘heavy volumes of entrenched PPI disputes could still take years to work through’.

Out of all complaints the FOS dealt with last year – including those relating to PPI, bank charges and mortgages – 55 per cent were resolved in the consumers’ favour, suggesting that people shouldn’t be afraid to complain when their bank steps out of line.

PPI was insurance against illness or job loss sold by lenders and credit card firms alongside loans to customers.

Policies were often added on to loans without people’s knowledge or sold to those who were not eligible for payouts, such as the self-employed.

The fine spells a double whammy of bad news for Lloyds in a week when it lost a court case against investors yesterday which will cost the bank £1billion in future years.
It comes after the bank wanted to repurchase enhanced capital note bonds, issued in 2009, as part of a rescue plan to bolster the bank’s balance sheet at the height of the financial crisis, at the price it sold them.

In return, bondholders were offered attractive interest rates of up to 16 per cent a year. Yesterday, a high court judge ruled the bank cannot redeem the bonds at face value.

Earlier in the week, the Government also fired the starting gun on a £4billion ‘Tell Sid’ style share sale to be launched within the next 12 months as it seeks to sell off more of the taxpayer stake in the business.

Lloyds was rescued by the taxpayer at the height of the financial crisis, but the Treasury’s holding has since been shrunk from 43 per cent to just under 19 per cent as parcels of it have been disposed of on the stock market.

Last month, Lloyds reported a better-than-expected 21 per cent rise in underlying profits to £2.18billion for the first quarter as it said it benefited from the improving economy.

It partly benefited from not adding any further charges to its multi-billion pound bill to cover the PPI scandal in the first quarter, though it would not rule out more in the future.

Lloyds was hit with penalties last July totalling £218million by the FCA and US regulators over benchmark rate-rigging practices.

These included an attempt to rip off the Bank of England over its financial life support scheme, behaviour described as ‘highly reprehensible’ by Bank governor Mark Carney.

In December 2013, Lloyds was fined £28million over incentive schemes that rewarded staff with ‘champagne bonuses’ and put advisers under pressure to hit sales targets or face demotion.
Lloyds Banking Group includes Lloyds Bank, Halifax and Bank of Scotland.

Article taken from – This Is Money


Posted by M Carey on 05 Jun 2015

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