FSA and FCA fines and enforcement actions in 2013

The FCA fined Lloyds TSB Bank plc and Bank of Scotland plc £28,038,800 on 10 December 2013 for breaches of Principle 3 (firms must take reasonable care to organise and control their affairs responsibly and effectively, with adequate risk management systems). Between 1 January 2010 and 31 March 2012 the banks had serious failings in systems and controls over sales incentives for branch advisers: pay structures (variable salaries, bonus thresholds) and a bias towards protection products created a material risk of inappropriate advised sales. Monitoring and governance were inadequate (including a flawed competency control that allowed advisers with identified sales issues to receive pay rises/bonuses) and senior management collectively failed to give incentives robust oversight. The firms settled early and received a 20% settlement discount (Stage 2), and are reviewing sales by higher‑risk advisers and will provide customer redress where appropriate.

On 10 December 2013 the FCA fined Lloyds TSB Bank plc and Bank of Scotland plc a combined £28,038,800 for breaches of Principle 3 (firms must act with due skill, care and diligence). The breaches arose from serious deficiencies in systems and controls over financial incentives for branch advisers who sold protection and investment products between 1 January 2010 and 31 March 2012 — incentives included variable pay, bonus thresholds and a strong bias toward protection sales that created a significant risk of inappropriate recommendations. The firms settled early and received a 20% settlement discount (the penalty would otherwise have been £35,048,500); they are reviewing sales by higher‑risk advisers in the Relevant Period and will provide redress to customers where appropriate.

On 15 February 2013 the Financial Services Authority (the FSA, the FCA’s predecessor) imposed a final notice and a £4,315,000 penalty on Lloyds TSB Bank Plc, Lloyds TSB Scotland Plc and Bank of Scotland (together Lloyds Banking Group) for failing to pay PPI redress promptly to complainants between 5 May 2011 and 9 March 2012. The FSA said LBG sent 582,206 decision letters agreeing to pay redress but failed to make payments within its 28‑day target in up to 140,209 (24%) cases; 24,589 cases had inadvertently dropped out of the payments process and remedial action was required. The FSA found breaches of Principle 3 (firms must take reasonable care to organise and control their affairs, including adequate risk management systems) and DISP 1.4.1R(5) (firms must comply promptly with offers of redress accepted by complainants); LBG agreed an early settlement (a 30% Stage 1 discount) and carried out a full reconciliation, paid interest at 8% p.a. where appropriate, and implemented process improvements including a PPI payment validation tool.

On 15 February 2013 the FSA (the FCA's predecessor) imposed a single Final Notice fining Lloyds TSB Bank Plc, Lloyds TSB Scotland Plc and Bank of Scotland Plc (together Lloyds Banking Group) £4,315,000 for failing to pay PPI redress promptly during 5 May 2011–9 March 2012. The firms had sent 582,206 decision letters agreeing redress but failed to make payment within 28 days in up to 140,209 (24%) cases; 24,589 payments inadvertently dropped out of the process and required remedial action. The FSA found breaches of Principle 3 (must organise and control affairs responsibly and effectively) and DISP 1.4.1R(5) (must comply promptly with accepted offers of redress); Lloyds settled early and received a 30% executive‑settlement discount (the fine would otherwise have been £6,164,327), carried out a full reconciliation, paid interest where appropriate and implemented process fixes including a PPI payment validation tool.

On 8 February 2013 the FSA fined UBS AG £9,450,000 for failures in its sales of the AIG Life Premier Access Bond Enhanced Variable Rate Fund (sales 1 Dec 2003–15 Sep 2008) and in handling related complaints (15 Sep 2008–20 Sep 2011). The FSA found UBS did inadequate due diligence and monitoring of the fund, had weak sales processes and adviser training, failed to record or review customers’ risk/tolerance or to send suitability reports, misdescribed the fund as a cash/money‑market product, and assessed complaints unfairly — breaching Principle 9 (take reasonable care to organise and control its affairs) and Principle 6 (treat customers fairly). UBS settled early and received a 30% (Stage 1) settlement discount (the undiscounted penalty would have been £13,500,000); it agreed a redress programme estimated at about £10m. At the fund’s suspension on 15 September 2008, 565 UBS customers (618 policies) had c.£816m invested; the FSA’s review of 33 sales found 19 mis‑sold and a further 12 at considerable risk of being unsuitable.

On 6 February 2013 the Financial Services Authority (the FSA) imposed a £87.5m penalty on The Royal Bank of Scotland plc for misconduct relating to LIBOR. The FSA found that between January 2006 and March 2012 RBS breached Principle 3 (firms must establish and maintain adequate risk management systems and controls) and that between October 2006 and November 2010 it breached Principle 5 (firms must observe proper standards of market conduct). The final notice says RBS sought to manipulate Japanese yen and Swiss franc LIBOR submissions and to influence other banks’ JPY submissions to benefit its derivatives and money‑market trading books, and that RBS did not have adequate systems and controls for its LIBOR submission process until March 2011, with initial measures remaining inadequate.