Lloyds Banking Group and FCA fines: A cautionary tale in the importance of proper conduct

By Fraser Doig

The Financial Conduct Authority (FCA) have issued a fine of over £64m to Lloyds Banking Group for the mishandling of mortgage customers in arrears between 2011 and 2015. In regards to these FCA fines, it was stated that three of the group’s brands – Lloyds Bank plc, Bank of Scotland plc and The Mortgage Business plc – failed to provide call handlers with enough information to make accurate assessments of their mortgage customers’ circumstances. This led to inconsistencies and an inflexible process that increased the risk of customers being treated unfairly.

This risk was compounded when a significant number of staff with expertise in mortgage collections and recoveries were lost, leaving those call handlers responsible for mortgage arrears to staff that were inexperienced and inadequately trained.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA said:

“Banks are required to treat customers fairly, even when those customers are in financial difficulties or are having trouble meeting their obligations. By not sufficiently understanding their customers’ circumstances, the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears, over several years.  In some cases, customers were treated unfairly, including vulnerable customers.

Firms should take notice of the action we have taken today to ensure that their own treatment of customers meets our expectations.”

The FCA said the effects of the coronavirus outbreak now put mortgage holders and providers under greater strain which "only heightens the importance of firms treating customers in financial difficulty fairly and appropriately."

This is not the first time Lloyds Banking Group has had a run-in with the FCA.

  • In 2013, the FCA fined Lloyds Banking Group over £28m for serious sales incentive failings that led to “a serious risk that sales staff were put under pressure to hit targets to get a bonus or avoid being demoted, rather than focus on what consumers may need or want.”
  • In 2015, the FCA issued its largest ever retail fine (£117m) to Lloyds Banking Group for failing to treat their customers fairly when handling Payment Protection Insurance (PPI) complaints between March 2012 and May 2013.
  • In 2019, they were fined £45.5m for failing to disclose suspicions of fraud at their HBOS Reading branch.

This latest fine ought to incentivise all firms to re-evaluate their own culture and conduct programmes to ensure FCA compliance and consider if there is anything they can do to mitigate the risk of suffering a similar fate to Lloyds.

So what can firms do?

The Senior Managers & Certification Regime (SM&CR) is incredibly important, as it is considered by the regulators as the “catalyst to transform the culture in financial services.” SMCR provides an opportunity to establish healthy cultures and effective governance in firms by encouraging greater individual accountability and setting a new standard of personal conduct.

Similarly, lack of proper training is a very significant risk, and the best control is to review and establish comprehensive training programmes.

At Ideagen, our core purpose is ensuring that businesses across the world have the right people and processes in place to protect themselves against numerous business risks such as compliance, financial, reputational, operational, legal and strategic. With our Individual Accountability and Competency Management software solution, Pentana Compliance, we bring compliance issues into sharp focus for financial firms, who’s distinctively complex set of requirements demands a much more fine-tuned approach and can have a knock-on effect on other aspects of business risk.

Read more about our take on the growing importance of prioritising culture and conduct within financial services in our white paper, Culture and Conduct: Why SM&CR and effective risk management is paramount.

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