From Business Times
Lloyds TSB was fined GBP 1 million (S$2.35 million) in 2002 by the Financial Services Authority (FSA) of the UK and had to set aside GBP 165 million to compensate claims relating to mis-sold endowment policies, involving 45,000 policyholders.
In 2003, Lloyds TSB was further fined GBP 1.9 million and had to compensate GBP 98 million to 22,500 investors, many of them pensioners. This was related to the mis-selling of high-income 'precipice' bonds touted as an 'Extra Income and Growth Plan'. These bonds promised a return of 9.75-10.25 per cent over three years (twice the bank deposit rates then) and were linked to 30 stocks. They were called 'precipice' bonds because the investors' capital returns could 'fall off a cliff' if the markets fell below a pre-set trigger point.
The markets linked to the 30 stocks did indeed fall. These high-risk bonds, which were highly leveraged, were sold to inexperienced investors. Some 16,500 investors had never purchased equity-related investment products before.
22,500 sales out of 51,000 (that is, 44 per cent) of the total sold were deemed to have been mis-sold. Howard Davies, outgoing chairman of FSA, said that the products sold by Lloyds were 'inherently wicked' (because they were highly leveraged) and they were sold to unsuitable people.
Andrew Proctor, FSA director of enforcement, said: 'There was nothing wrong with the product itself. The problem was that too much of it was sold to the wrong people.'
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