HSBC has been hit with the biggest ever retail fine of £10.5 million for giving inappropriate advice to elderly customers between 2005 and 2010.
The advice was provided through one of its subsidiaries NHFA – which has since been closed to new business – with HSBC also facing a bill of £29.3 million to be paid out in compensation to customers.
The fine was handed down by the Financial Services Authority (FSA), with the regulator describing the case as the type that 'undermines confidence in the financial services sector.'
Almost 2,500 customers were advised to invest in asset-backed investment products by NHFA, typically investment bonds, to fund long-term care during the five year period.
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.
Typically these investments are recommended for a minimum period of five years, but in a number of cases the customer's life expectancy was less than five years.
It meant 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 a faster reduction of capital than should have been the case if customers had received the right advice.
On average, customers invested approximately £115,000, meaning a total of close to £285 million was placed in the products.
A review of the case found that almost nine in ten (87%) of customers were unsuitable for such products.
The FSA said it was clear that HSBC's subsidiary, 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.
The failings of NHFA were found to be significant because of the vulnerability of the customer base, with an average age of 83, while the company was the leading provider of independent financial advice on long-term care products to help pay for care costs.
HSBC agreed to settle at an early stage entitling it to a 30% discount on its fine, and has also been credited with demonstrating a commitment to making changes to its operations.
"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," said Tracey McDermott, acting director of enforcement and financial crime at the FSA.
"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."
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