FSA fines HSBC £10.5 million for mis-selling

The Financial Services Authority has issued a record retail fine to HSBC for a subsidary's mis-selling of investment products to elderly customers.

The Financial Services Authority (FSA) has hit HSBC with a fine of £10.5 million, the largest-ever retail fine. It’s taken action over what it calls “inappropriate investment advice” provided by HSBC subsidiary NHFA Limited to elderly customers.

The FSA says that between 2005 and 2010 NHFA advised nearly 2,500 elderly customers to invest in asset-backed investments to fund long-term care costs. These investments were mainly investment bonds.

The products typically had a five-year investment term but many of the customers had a life expectancy of less than that period. The average age of the people buying these products was 83. In one case, a 94-year-old customer was sold a five-year investment, despite having a life expectancy of three years and three months.

As a result, people with shorter life expectancies had to make withdrawals. This, coupled with product charges, led to many people’s investment pot shrinking far more quickly than if they had received the right advice. The FSA argued that fixed-rate savings accounts and ISAs would have been more suitable investment vehicles.

An independent review of 22 customer files found that only one customer had received suitable advice. The FSA also found that there was no suitable risk profiling for customers and advisers failed to highlight the disadvantages of the investments alongside the possible benefits.

It said the fine was a reflection of the vulnerability of the customers, the length of the mis-selling period, the amount invested - which averages around £115,000 per customer - and the 60% market share NHFA enjoyed.

Compensation

In addition to the fine, the FSA has ordered HSBC to pay compensation, which the bank estimates will be in the region of £29.3 million. As HSBC agreed to settle at an early stage, it received a 30% discount on its fine.

In response to the fine, 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 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."

NHFA was closed to new business in July.

You can read the full FSA report here

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