Lloyds Banking Group has been fined £28m for "serious failings" which rewarded sales staff with 'grand in your hand' bonuses, even when products they sold consumers were deemed unsuitable.
The Financial Conduct Authority (FCA) said the penalty was the biggest it had imposed against a retail banking operation, which took in behaviour at Lloyds TSB, Bank of Scotland (BoS) and Halifax between 2010 and March 2012 - a period when it became clear that Lloyds was particularly exposed to the separate payment protection insurance mis-selling scandal.
The regulator said the bonus schemes at the heart of its inquiry put pressure on sales staff to hit targets relating to investment products such as stocks and share Isas and insurance protection products.
In one instance, an adviser was found to have sold insurance products to himself, his wife and a colleague to prevent himself being demoted.
The FCA said the bonus schemes had worrying "higher risk" features, which offered the potential of an automatic promotion and pay rise or salary cuts of up to 50% if targets were not met.
Lloyds Banking Group is run by Antonio Horta-Osorio Lloyds TSB also offered a so-called "champagne bonus" that could see an adviser land a windfall worth 35% of their monthly salary, while Halifax and BoS paid one-off monthly prizes, such as a "grand in your hand."
The investigation found that 70% of advisers at Lloyds TSB and 30% at Halifax still received their monthly bonus, even though a high proportion of their sales were found - by the firms themselves - to be unsuitable or potentially unsuitable.
A further 229 advisers at Lloyds TSB received a bonus even when all of their assessed sales were deemed unsuitable or potentially unsuitable; and 30 advisers received a bonus in the same circumstances on more the one occasion.
Tracey McDermott, the FCA's director of enforcement and financial crime, said the fine was increased as Lloyds ignored repeated industry warnings from regulators over incentive schemes.
She added: "The findings do not make pleasant reading.
"Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the customer at the heart.
"The review of incentive schemes that we published last year makes it quite clear that this is something to which we expect all firms to adhere.
"Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first - but firms will never be able to do this if they incentivise their staff to do the opposite.
"Both Lloyds TSB and Bank of Scotland have made substantial changes, and the reviews of sales and the redress now being made should right many of these wrongs," she concluded.
Lloyds Banking Group - which has since split the TSB operation into a separate brand - responded to the penalty by apologising.
Its statement said: "The Group has already commenced a review to address potential customer impacts that may have occurred as a result of these failings.
"We are already contacting customers, and will continue to contact potentially affected customers over the coming months. Customers do not need to take any action at this stage to be included in the review and they will be contacted in due course.
"The Group recognises that its oversight of these particular schemes during the period in question was inadequate and apologises to its customers for the impact that they may have had.
"We are determined to ensure that any customer impacts are dealt with quickly and fully."
It concluded: "The cost of the enforcement and the review is not expected to have a material impact on the Group."
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