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Poor fact-finds and rate rise predictions: Why RBS was fined £14.5m

Mortgage advisers at Royal Bank of Scotland and NatWest improvised fact-find questions, told customers interest rates would rise and failed to adequately assess affordability, the FCA’s final notice reveals.

Earlier today the FCA fined RBS and NatWest £14.5m for serious failings in the way the banks provided mortgage advice between June 2011 and March 2013.

It found several advisers gave customers their own predictions on the future movement of the Bank of England base rate. The FCA says such conduct is “highly inappropriate”.

In one case when a customer asked an adviser if rates would rise, the adviser responded, “Yes. Absolutely”, and suggested rates could reach 5.5 per cent.

The adviser recommended a five-year fixed rate mortgage to the customer and told them: “If we don’t increase interest rates with this double-dip recession the economy is in dire straits. Rates will rise. If you take a two-year deal then rates will be higher after this period.”

The FCA found the banks’ process for assessing affordability was inadequate.

The process considered expenditure based on Office of National Statistics data and took into account some customer data, but failed to consider the full extent of a customer’s budget.

Mystery shop exercises carried out by the banks in 2012 showed that one adviser was found by his supervisor to have made 16 separate professional standards failings.

The supervisor said: “Treating customers fairly principles have not been met during this customer meeting due to misleading information being given on a number of occasions.

“Given the seller has recorded customer confirming affordability into retirement within the suitability letter when this was not confirmed by the client, appropriate advice has not been given and inappropriate behaviour has been displayed.”

Despite these findings, the adviser was allowed to continue to sell to the public with “back to basics coaching”.

The FCA also found the banks’ fact-find process was “limited”, as it included only a basic list of questions which advisers were required to ask.

Beyond this basic list it was left to advisers to determine which questions should be asked.

The training workshop provided to prospective advisers described the process as follows: “Before you carry out a fact find you need to have a question bank stored in your head that you can draw upon at any time during your interview.”

The regulator says the process was made worse by the banks’ “cumbersome and restrictive” IT system, which prevented advisers from properly recording the fact-find.

They used a free text box which was restricted to 500 characters and which the FCA says “inevitably led to advisers struggling to evidence general suitability of advice”.

The FCA also found advisers were not giving advice on mortgage terms, and only took into account customers’ preferences.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. “The process considered expenditure based on Office of National Statistics data and took into account some customer data, but failed to consider the full extent of a customer’s budget.”

    This is how NatWest for Intermediaries still assess affordability. No bank statements necessary.

  2. The processes at RBS and LloydsTSB and Scottish Widows was a dereliction of Duty by Executives ( and at Scottish Widows Actuaries – who claim to be ” professionals ” acting under a Code of Conduct ? The reality is the stupid people – the Directors saw an opportunity to wreck the finances of individuals – with little downside risk – as tey saw property prices continue to increase – and lost sight of common sense – and their duties – or due care and attention – that property prices may not rise – and their desire to maintain ” market Share ” – are the actions of FOOLS and MIschief Makers . . . . . . to the detriment of the clients> The failure of executives and Chairmen – to check the affordability – their refusal to check the affordability demonstrates they are Negligent and NOT FIR FOR PURPOSE – leaving clients and policyholders exposed – without any penalty or deterrent – like a Rotherham Council official and their Police. .. . Blind because they turned away form their duties . . . their responsibilities . . . . for their personal wealth . . . these power crazed individuals working collectively . . .with various companies. . . .

  3. I struggle to understand how a major organisation can still operate in such an apparently sloppy manner almost 30 years after the introduction of Regulation and 6 years after being castigated for being a significant cause one of the biggest financial catastrophe’s in history. The arrogance alone is worthy of a massive fine.
    I would question why such a fine should go to the Regulator. Why doesn’t the FCA command RBS to make recompense directly to the clients subject to this level of poor administration along with a letter of apology. Money would then go to the recipients of the advice, which may provide them with the resources to take alternative advice to determine whether the original bank advice was competent. Is it too simplistic to believe the legislation was designed benefit the consumer rather than the FCA bonus line?
    There is one aspect of of the regulatory process that has not, to the best of my knowledge, been investigated, namely whether there is any positive correlation between the quality of advice and service given and the eventual outcome. I am excluding fraudulent advice from the question.
    One would need to look at a reasonable timescale when dealing with the question; perhaps 5 and 10 years would be appropriate.
    So many things change over such periods it is quite possible for highly competent advice to be significantly inferior to bad advice over the longer term. Luck will also play a factor.
    At the present time there is an assumption that good advice is best but there is no objective evidence that such an assumption is valid. We don’t even know if it is probably better.
    What would the implications be for the industry if research showed that that advice is no better than random. Philip Tetlock has demonstrated such a finding in respect of expert advice. The outcome of that research is that there has been no change in the way “experts” provide their “expert” forecasts.
    If a similar scenario applied to financial advice one would need to question the cost of the FCA that is associated with “best advice” as opposed to fraud. If advisers cannot beat chance when giving advice then regulating such matters would need a rethink.
    It is probable that most advisers can remember instances when events improved the advice and other times when remedial action was required. We need to know whether such occurrences are marginal or significant in statistical terms.
    This finding on RBS could be the basis for such research. The poor record keeping would imply poor advice. The initial implementation of that advice is known so can be tracked, even if adjustments are subsequently made. Is anyone brave enough to take on the project?

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