The FSA has fined HSBC £ 10.5 m for inappropriate investment advice provided by one of its subsidiaries, NHFA Limited (NHFA), to elderly customers.
It is the biggest ever retail fine issued by the regulator and HSBC assesses that the amount of settlement to be paid to NHFA customers will be around £ 29.3 m.
Between 2005 and 2010, NHFA advised 2,485 clients to invest in asset-backed investment products, typically investment bonds, to fund long-term care fees for elderly customers.
The items, which are typically advised for a period of five years, were sold to consumers entering, or already in, long-term care and in many cases these senior customers were reliant on the financial investments to pay for their care.
However, the advice and sales were unsuitable since, in a number of cases, the individual’s life expectancy was below the advised five-year investment period, meaning customers with shorter life expectancies had to make withdrawals sooner than is recommended.
The combination of withdrawals and service charges led to faster reduction of capital than should have been the case if customers had received the right advice and an appraisal by a third party of a sample of customer files found improper 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 senior 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 agents also failed to view the tax status of customers before making a recommendation.
The FSA said the failings were especially significant because:
NHFA’s customer base was particularly vulnerable. The average customer age was almost 83 and they therefore had reduced means or opportunity to make up any financial loss resulting from an unsuitable sale
NHFA was the leading provider in the UK of independent financial advice on long-term care products to help pay for care costs, with a market share in recent years applying to 60 %
The mis-conduct occurred over a period of around five years; and
A significant number of customers may have suffered financial detriment. During the Relevant Period 2,485 customers invested in asset-backed products. The total amount invested was close to 285 million, meaning the average amount invested per customer was roughly 115,000
The failings breached Principle 9, which states that a firm must take realistic care to ensure the viability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.
HSBC Investment Mis Selling
HSBC is now embarking on 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 remedy alone to be # 29.3 m.
It agreed to settle at an early stage entitling it to a 30 % discount on its fine. It also demonstrated its dedication 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 susceptible and elderly customers. It breached that trust to sell them improper products. This type of behavior undermines confidence in the financial businesses sector.
‘HSBC, who owned NHFA, has now recognized the problems and taken steps to do the right thing. They have been given acknowledgment for that – but for some customers it will be too late.’
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