HSBC faces a £40m bill for mis-selling investment products to fund long-term care to elderly customers and their families.
It has been fined £10.5m by the Financial Services Authority for providing inappropriate investment advice to customers through its subsidiary NHFA Limited, and faces a compensation bill of approximately £29.3m.
From 2005-10, NHFA advised 2,485 customers to invest approximately £285m in investment products to pay for long-term care. However, the FSA found that the advice and sales were unsuitable because:-
- In a number of cases, life expectancy was below the five-year period of the investment, meaning people had to make withdrawals from their investments sooner than was recommended, reducing their savings more quickly than would have happened if they had received the right advice.
- There was no consistent approach to assessing customers’ attitude to risk, meaning some were recommended products that did not match their tolerance for risk.
- In the majority of cases reviewed, the FSA found that a different product should have been recommended or no product should have been recommended at all.
- Advisers failed to consider the tax status of customers before making a recommendation.
- Letters sent out to customers were not tailored to their individual circumstances, contained inaccuracies and failed to give balanced information, focusing on the benefits of an investment and not providing sufficient warnings about the possible disadvantages.
The FSA’s fine is the largest ever issued for a retail service. It said the failings were particularly grave because NHFA was the leading supplier of independent financial advice on long-term care in the UK and its customers were particularly vulnerable and had limited means to make up any financial loss resulting from an unsuitable sale.
However, it said that it had received no compliants that customers had been forced to leave their care home as a result of the advice given by NHFA.
NHFA was closed to new business in July 2011.
Responding to the ruling, HSBC chief executive Brian Robertson said: “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 1 July 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.
“At this stage NHFA customers do not need to contact us. We will be contacting them directly during the coming weeks with the aim of putting things right as quickly as possible.”
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