The UK's Financial Services Authority (FSA) on Thursday imposed a £1.9 million fine on Lloyds TSB over the mis-selling of its Extra Income and Growth Plan (EIGP), and obliged the financial services firm to pay out around £98 million in compensation.
According to the FSA, some 44% of the high income equity-linked bond sales were deemed to be to unsuitable investors on later investigation.
The product was designed by the Scottish Widows Group, which was acquired by Lloyds TSB in 2000, and was distributed through the latter's branch network between October 2000 and July 2001.
The financial services regulator explained last week that:
"LTSB did not have in place sufficiently rigorous procedures and controls for considering all of the issues surrounding the selling of the EIGP. 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. (Together, these two factors are described as 'concentration levels'.)"
It continued:
"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."
Although Lloyds TSB had reportedly anticipated a far higher fine, the FSA revealed that the firm's full cooperation in the investigation and willingness to pay compensation had been taken into account when calculating the £1.9 million figure.
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