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The FSA has fined HSBC £10.5m for inappropriate investment advice provided by one of its IFA subsidiaries, NHFA Limited (NHFA), to elderly customers.
It is the largest ever retail fine issued by the regulator and HSBC estimates that the amount of compensation to be paid to NHFA customers will be approximately £29.3m.
Between 2005 and 2010, 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, which are typically recommended for a period of five years, 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.
However, 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, meaning customers with shorter life expectancies had to make withdrawals 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 and a review by a third party of a sample of customer files found unsuitable sales had been made to 87% of customers involving these types of investments.
The FSA said it was clear that NHFA had not considered the individual needs of its elderly customers and failed in many cases to recommend suitable products for their circumstances, for example higher fixed interest rate savings accounts and ISAs.
It added NHFA's advisers also failed to consider the tax status of customers before making a recommendation.
The FSA said the failings were particularly significant because:
The failings breached Principle 9, which states that a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.
HSBC is now undertaking a past business review to determine if customers of NHFA or their families are entitled to redress and will contact customers directly. It has indicated that it expects the cost of redress alone to be £29.3m.
It agreed to settle at an early stage entitling it to a 30% discount on its fine. It also demonstrated its commitment to making changes to its operations. HSBC closed NHFA to new business on 1 July 2011.
Tracey McDermott, acting director of enforcement and financial crime, said: "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."
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HSBC Fine
This fine is a step in the right direction - however had an IFA been found guilty of this type of offence we would reading about personal fines and bans so let us please see similar sanctions being applied to Bank Salesman and Directors.
Posted by: Terry Humphreys
Good timing
No doubt timely for the FSA Christmas Bonus season. After all success will have been rewarded.
Posted by: Felix Godwyn
HSBC fine
Pity wasn't 10.5 billion.I am just a mortgage and protection adviser but they are patasites off brokers and time wasters for the three out out of four clients they turn down.So many people have seen them in best buys and ask me. I will say try them but expect disappointment. At least they then come back to us as grateful refugees.And their insurances which is what they are really after are absolute rubbish and they make them appear compulsory until you tell your client to demand a KFI which says they are compulsory. Threatening to report them when they cannot do that usually producesan offer for the small number who get approved.
Posted by: Des Platt
HSBC
WILL THIS BE THE NEXT SCANDAL for HSBC PLC? To the Chairman of HSBC PLC (Mr. Flint) will this be the next scandal for HSBC PLC? Is it true that the FSA is investigating you for giving false and misleading information to shareholders at this year’s AGM about complaints in India? Help Stop Bankers Cheating? This fine is an obscene joke? If the FSA wanted to make an example of HSBC, START THE FINE AT £100 MILLION (they can afford to pay this amount). FSA acting director of enforcement and financial crime Tracey McDermott says: This type of behaviour undermines confidence in the financial services sector. Yet in the next breath: HSBC, who owned NHFA, has now recognised the issues and taken steps to do the right thing. They have been given credit for that (IS THIS ANOTER OBSCENE JOKE?). The fine is £ 10.5 million yet the FSA give HSBC a discount of 30%, HSBC HAS TO PAY £ 7.4 million? IS THIS THE REAL JOKE? Is a fine from the FSA like a parking ticket, pay up fast and we will give you a discount? Why not say if you do not pay in ten days, we will charge you INTEREST per day. The Chairman (Mr. Flint) states “maintaining our reputation and our integrity” “Everything we do is governed by the imperative of upholding HSBC’s corporate reputation and character at the highest level” (IS THIS ANOTER OBSCENE JOKE?). HSBC chief executive Brian Robertson says: 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 (IS THIS ANOTER OBSCENE JOKE?). What about the USA and INDIA (ask them of your HIGH Values) What about the last time the FSA fined HSBC? What will HSBC HAVE TO PAY IN THE USA, for what they have been doing there? The Chairman (Mr. Flint) calls it a number of weaknesses. What a CHAIRMAN you are Mr Flint? What about HSBC PLC’s REPUTATION and INTEGRITY? Should not the CHAIRMAN of HSBC PLC MAKE THE APOLOGY? Mr. Flint will you call THIS an INVIDIOUS IRRATITION? REMEMBER THE AGM Mr. Flint.
Posted by: Michael Mason-Mahon
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No Surprises at all.
When are the FSA going to address the issue of 'product flogging' by the banks? The attitude of the banks salespeople is to flog something towards their targets regardless and this encouraged by their management.I have recently spoken with an adviser who has worked for several banks and the culture he believed in was astounding. There is a definite need for regulation but when the persistent offenders are fined and not banned it will continue on every high street in the UK.
Posted by: Peter Taylor