FSA fines HSBC £10.5m over misselling to elderly customers
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The FSA has issued its largest ever retail fine of £10.5m against HSBC because of inappropriate investment advice provided by one of its subsidiaries to elderly customers.
HSBC estimates that the amount of compensation to be paid to Nursing Homes Fees Agency customers will be approximately £29.3m in addition to the fine.
Between 2005 and 2010 HSBC subsidiary NHFA advised 2,485 customers to invest in asset-backed investment products, typically investment bonds, to fund long-term care costs for elderly customers. The products were sold to individuals entering, or already in, long-term care and in many cases these elderly customers were reliant on the investments to pay for their care.
The average age of NHFA’s customer base was almost 83. The total amount invested was close to £285m, putting the average amount invested per customer at approximately £115,000.
In June, HSBC announced it was to close NHFA to new business as it “no longer forms part of the group’s strategic direction”.
The advice and sales were unsuitable because in a number of cases the individual’s life expectancy was below the recommended five-year investment period. As a result customers with shorter life expectancies had to make withdrawals from these investments sooner than is recommended.
The combination of withdrawals and product charges led to faster reduction of capital than should have been the case if customers had received the right advice.
A review by a third party of a sample of customer files found unsuitable sales had been made to 87 per cent of customers involving these types of investments.
The FSA says it was clear NHFA had not considered the needs of its elderly customers and failed in many cases to recommend more suitable products such as higher fixed interest rate savings accounts or Isas. NHFA also failed to consider its customers tax status.
NHFA’s market share of the long-term market was nearly 60 per cent, in the years leading up to the subsidiary’s closure in June.
The misconduct occurred over a period of five years.
FSA acting director of enforcement and financial crime Tracey McDermott says: “NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products. This type of behaviour undermines confidence in the financial services sector.
“HSBC, who owned NHFA, has now recognised the issues and taken steps to do the right thing. They have been given credit for that - but for some customers it will be too late.
“This penalty should serve as a warning to firms that they must have the right systems and controls in place to manage and identify risks when they acquire new businesses. A failure to do so can lead not only to detriment to their customers but to significant reputational and regulatory cost.”
HSBC chief executive Brian Robertson says: “I fully accept that NHFA failed to give suitable financial advice to some of their customers. This should not have happened and I am profoundly sorry that it did.
“We have high values here at HSBC and this runs contrary to everything that we stand for. That is why when we suspected something was not right at NHFA, we took action. We advised the FSA of our findings and closed NHFA to new business on July 1, 2011.
“We are undertaking a full review of the advice given to impacted customers and I can guarantee that every customer who is found to have not been treated fairly will not be disadvantaged.”
HSBC will be writing to existing NHFA customers advising them of the closure of the business. Customers whose files are being reviewed will be informed within their letter, and HSBC will write to customers again to let them know the outcome of the review.
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Readers' comments (51)
John | 5 Dec 2011 10:49 am
Another fine example of how the banks can be trusted. Just think of the field day they will have post RDR.........
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Peter Ireland | 5 Dec 2011 10:51 am
Why the "Investors best friend" from HSBC advert in the middle of the report?
Yet another bank based scandal. The same question regarding targeted bank product sales managers and staff applies is it "the sty that makes the pig dirty or the pig that makes the sty dirty" ?
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RW | 5 Dec 2011 10:56 am
Well done FSA (on this occasion).
Keep looking.............there's more.
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Barry Woolley | 5 Dec 2011 11:00 am
Yet again another bank gets fined in the millions, has even more millions to pay in compensation, this time for mis-selling to elderly, vulnerable people and the FSA deem that to be enough. When are they (FSA) going to get tough and take up criminal proceedings against the senior managers in these organisations. Until they do nothing will change. You can bet if it were a small IFA or smaller network individuals would have been fined and banned from the industry.
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Anonymous | 5 Dec 2011 11:14 am
what about the advisers individually? Oh that's right around 400 of them were made redundant. I guess they'll just crack on with giving tied 'advice' with a different name above the door........
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Anonymous | 5 Dec 2011 11:19 am
Same old story, Banks and miss-selling.
Dear FSA why are they not de-authorised, any small firm which systematically miss-sold one product would be shut down. Why do you allow Banks to do it time and time again, if you don’t address this question how can we come to any other conclusion than it is because you are in their pockets.
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Peter Herd | 5 Dec 2011 11:19 am
£10.5 million fine may sound big but in fact it's nothing more than a parking ticket to a firm that makes billions of pounds worth profit a year.
What we should be asking is where are the banning orders and indeed the fines on individuals, particularly those in management control positions.
When is the regulator going to start to treat Banks in the same way as they treat IFA and Mortgage Brokers?
I read with interest every week a banning order for a small IFA practice or Mortgage Broker, but no such banning orders or prosecutions for bank directors or senior management.
I wonder if the response from the FSA would be that nobody at these firms are directly responsible or indeed at fault? SURELY THAT CANNOT BE TRUE!
It would be interesting if Money Marketing would do a Freedom of information act request to find out how many bank employees have been banned or individually fine since 2007?
Then compare this with the number of IFA or Mortgage Brokers, I think the results may be interesting and show considerable biased towards the Banks, no wonder they're so arrogant and act so irresponsibly!
Answers on a postcard please
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Hugh | 5 Dec 2011 11:26 am
Before you put all the blame on HSBC not doing due diligence when they bought the business, which is pretty obvious, I would also ask what on earth the FSA were doing as NHFA was directly authorised from 2005 to 2010. If, as it appears, that the level of misselling was so high, surely someone in the labyrinth of Canary Wharf could have picked this up far sooner?
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Chippy Minton | 5 Dec 2011 11:31 am
Is this right? If you are 83 or older the FSA now says that you are not allowed to invest in anything except deposit accounts where the real value of your money will erode. Even though you could live another 20 years?
What about if you already have investments - should we be advising our older clients to cash in?
Before we indulge in the schadenfreude of a big bank getting a slap we should consider what this could mean for our own businesses.
If markets had risen constantly since 2005 would this review have happened? I think that this is just a case of the FSA regulating retrospectively yet again and moving the risk from the client to the adviser.
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Peter Herd | 5 Dec 2011 11:48 am
Dear Chippy Minton
I think you're missing the point entirely or maybe you're a bank employee!
The fact is these individuals were either in long-term care or about to go into long-term care this means that selling a structured bond would have been totally inappropriate. If these individuals were looking for advice then I hope that an IFA would look at the appropriate long-term care annuity product or investments that allowed the investor income and accessibility as this would be more appropriate.
The fact is that these structured bonds would have been for a fixed term of five years with no accessibility without penalties - I would hope no self-respecting IFA would recommend that type of product to a client who is in a vulnerable situation. If they do then they deserve to be fined and banned along with the bank advisers and senior management, as we don't need them in our industry.
I like the way you also hide behind your real name when coming up with such a ridiculous comment
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