Lloyds Banking Group has docked £350,000 from the bonus of its chief executive, António Horta-Osório, after being fined £117m for mishandling compensation claims for payment protection insurance.

Horta-Osório apologised for the conduct of the bank – which is still 19% owned by the taxpayer – after it was forced to review 1.2m customer complaints. The review was prompted when the Financial Conduct Authority found Lloyds failed to treat customers fairly.

Even though the chief executive’s bonus was reduced, he could be in line for a £4m payout from bonuses awarded in 2012 and 2013 – the period when the bank was found to be treating customers unfairly – and another £6.4m from a long-term scheme.

The fine on Friday was prompted by a new policy introduced by Lloyds in March 2012, known as Lighthouse. Under Lighthouse, also referred to as “the over-riding principle”, the bank told its 7,000 special PPI call centre staff to assume that its sales of PPI were “compliant and robust” and that claims were therefore invalid. They denied compensation – unless told otherwise by their managers.

Internal documents showed that as soon as Lighthousewas introduced there was a fall in the number of complaints upheld. On the first day the policy was in operation the number fell by 10% . But a review by the FCA in November 2012 found the bank had unfairly rejected 57% of the complaints.

“Whilst our intentions were right, we made mistakes in our handling of some PPI complaints. I am very sorry for this,” said Horta-Osório, whose pay packet in 2014 was £11.5m.



We made mistakes in our handling of some PPI complaints. I am very sorry for this António Horta-Osório

John Mann, the Labour MP who sat on the Treasury select committee, said Lloyds’ senior management had failed to “get a grip” on the problem. “The taxpayer still owns a 19% stake in the bank and its time we heard from the senior non-executive directors about what they have been doing whilst the bank lurches from one scandal to the next,” Mann said.

In anticipation of the penalty by the FCA, the bank announced in February that it had frozen deferred bonuses from 2012 and 2013 for its executive team. A total of £2.65m in bonuses are being permanently withheld, which means that millions will still be handed out to the top management team. The bonus pool for the entire staff has been cut by £30m.

The £350,000 being withheld from Horta-Osório represents approximately 12% of his payout relating to the period covered by the FCA fine. The average being withheld from the dozen or so members of the executive committee is about 25%. Among them are thought to be the outgoing head of the retail bank, Alison Brittain who is leaving to run Whitbread, and the finance director, George Culmer. .

Georgina Philippou, acting director of enforcement and market oversight at the FCA, said PPI complaint handling was a high priority for the regulator. “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.

“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,” she said.

Customers were told their complaints had been investigated when they had not been. The FCA provided a number of examples:



A complaint in 2012 from a customer with a personal loan who said he did not know he had been sold PPI. The complaint was rejected even though the handler did not have access to any information about the sale. The customer was told, however, that “appropriate weight and balanced consideration” had been given to the claim.

A customer who said she did not know PPI had been sold alongside her credit card had her complaint rejected after a complaint handler failed to reach her after three phone calls – the number of attempts required by the bank’s policy.

Another customer had his claim rejected after a complaint handler failed to reach him after making three phone calls on the same day. The bank rejected the claim on the basis that there was no information to back up the claim.

The Lloyds fine surpasses the previous record for Clydesdale bank, which was fined £21m in April. The Australian-owned bank was found to have sloppy internal procedures and also misled the industry adjudicator, the Financial Ombudsman Service.

The banking industry has so far set aside £25bn as a result of the PPI scandal. Lloyds has the biggest single bill, at £12bn, with £710m related to the FCA action.