Banking giant HSBC is set to pay out £40m in fines and compensation after one of its subsidiaries sold savings products to elderly customers who were likely to die before the recommended investment period was up, the UK's regulator said today.
The UK Financial Services Authority (FSA) has issued its biggest ever retail fine of £10.5m to HSBC after NHFA “inappropriately” advised 2,485 customers to invest in “unsuitable” investment bonds between 2005 and 2010. The FSA estimates NHFA customers will be paid a total of £29.5m in compensation.
In a number of cases, the individual’s life expectancy was below the recommended five-year investment period and as a result customers with shorter life expectancies had to make withdrawals from their investments sooner than recommended.
The products were sold to elderly 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.
HSBC has apologised for what happened at NHFA, which closed for new business in July, and reassured affected customers that they would be contacted within weeks.
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, with the total amount invested in the period hitting £285m, the FSA said.
The watchdog said NHFA, the leading UK supplier of independent financial advice on long-term care products to help pay for care costs, had not considered the individual needs of its customers and failed to recommend suitable products.
The failings were deemed significant as the customer base, with an average age of 83, was particularly vulnerable and a high number of customers suffered financially, with the average amount invested per customer coming in at £115,000.
Tracey McDermott, acting director of enforcement and financial crime, said NHFA, which had a 60% market share in recent years, was trusted by its vulnerable customers.
She said: “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.”
NHFA was acquired by HSBC in July 2005 and, until May 2010, was separately authorised and regulated by the FSA.
NHFA sold investment bonds through their families or representatives in the majority of cases.
The products were single-premium life assurance contracts, under which a lump sum was invested for the customer until the bond was either cashed in or until the death of the last life assured.
Brian Robertson, HSBC Bank chief executive, 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.
“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.”