FSA fines HSBC £10.5m over mis-selling

HSBC’s subsidiary NHFA Limited (NHFA) was found to have mis-sold to elderly customers.

HSBC estimates that the amount of compensation to be paid to NHFA customers will be about £29.3m in addition to the fine.

Between 2005 and 2010 NHFA advised 2,485 customers to invest in asset-backed investment products, typically investment bonds, to fund long-term care costs for elderly customers.

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 were recommended for a minimum period of five years.

The advice and sales were found by the FSA to be unsuitable because in a number of cases the individual’s life expectancy was below the recommended five-year investment period.

As a result 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 faster reduction of capital than should have been the case if customers had received the right advice, according to the City watchdog.

A review by a third party of a sample of customer files found unsuitable sales had been made to 87 per cent of customers involving these types of investments.

The FSA stated 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.

It was also apparent, according to the regulator, that NHFA’s advisers failed to consider the tax status of customers before making a recommendation.

The FSA stated itb viewed the failings as particularly significant because:

* NHFA’s customer base was particularly vulnerable. The average customer age was almost 83 and they therefore had limited means or opportunity to make up any financial loss resulting from an unsuitable sale.

* NHFA was the leading supplier 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 approaching 60 per cent.

* The mis-conduct took place over a period of about five years.

* 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 £285m, meaning the average amount invested per customer was about £115,000.

According to the FSA, the failings breached principle nine, which states a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.