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* FCA says staff given "grand in hand" sales targets
* Lloyds says will deal with customer redress quickly
* Lawyers say FCA sending clear message on conduct to sector
* FCA says unclear how much redress will be paid
By Huw Jones
LONDON, Dec 11 (Reuters) - Britain's financial watchdogimposed a record 28 million pound ($46 million) fine on LloydsBanking Group for the way it encouraged staff to sell 2billion pounds of products that customers did not need.
The probe covered the sale of products such as criticalillness or income protection between January 2010 and March lastyear. During this time over a million products were sold toabout 700,000 people.
Lloyds sales incentives included the chance to win a one-offpayment of 1,000 pounds, known as a "grand in your hand".Another was called the "champagne bonus".
"The findings do not make pleasant reading," said TraceyMcDermott, the Financial Conduct Authority's (FCA) director ofenforcement.
The FCA was launched in April to try and end Britain'slitany of mis-selling scandals in financial products spanningover two decades. The fine was the largest ever imposed on abank for failings in how it sold products to retail customers.
The penalty was increased by 10 percent because thewatchdog's predecessor, the Financial Services Authority, hadalready warned the bank about poorly managed incentive schemesover a number of years. Lloyds was also fined in 2003 forunsuitable sales of bonds.
"The incentive schemes led to a serious risk that salesstaff were put under pressure to hit targets to get a bonus oravoid being demoted, rather than focus on what consumers mayneed or want," the watchdog said in a statement on Wednesday.
Lloyds had already set aside 8 billion pounds formis-selling loan insurance and 400 million pounds for mis-soldinterest rate swaps.
Lawyers said the level of the fine was a clear sign of howthe FCA wanted to crack down on poor conduct. It comes at a timewhen the bank is trying to burnish its image and bolster capitallevels for the sale of the government's remaining 33 percentstake in the lender, possibly to retail investors.
Lloyds said it accepted the findings and was already intouch with customers to address "potential impacts" that mayhave occurred due to past failings at its Lloyds TSB, Bank ofScotland and Halifax units.
"We are determined to ensure that any customer impacts aredealt with quickly and fully," Lloyds said in a statement,adding that it did not expect there to be any material financialconsequences for the bank.
Lawyers said the fine was a "drop in the ocean" for a bankthe size of Lloyds and the real cost was the disruption fromhaving to review so many customer files at a time when the bankis in the middle of a turnaround ahead of full privatisation.
Regulators published a review of incentive schemes last yearwhich highlighted problems and said at the time one firm, nowidentified as Lloyds, had been referred to enforcement.
The FCA said Lloyds has made substantial changes to "rightmany of these wrongs".
Labour union Unite said the target driven sales culture atbanks must be changed to better serve customers by giving staffa "fair day's pay" that is not linked to sales.
