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Three reviews but no holistic view: Santander’s failings

Santander’s £12.4m fine this morning (26 March) related to investment advice sales over an eight-year period was a result of failings that were found repeatedly in mystery shops and that were not corrected by process changes, the FCA has revealed.

An external consultants’ review of 50 of the 70 ‘premium investments’ sales which had been made in the first half of 2011 concluded that only 58 per cent of the sales were suitable, 12 per cent were unsuitable and for 30 per cent of sales it was not clear that they were suitable.

“High-level” trends were identified, including:

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• recommendations to customers with insufficient capacity for loss;

• recommendations to customers where there were insufficient details of the term of the investment; and

• inadequate customer risk profiling, due to conflicting facts about a customer’s attitude to risk.

Santander’s internal audit found improper calculations in relation to the minimum sum or cash reserve that a customer should retain in deposit, and that some 44 per cent of Santander’s system-generated investment returns forecasts used by advisers were “potentially misleading”.

In addition, 14 per cent of risk-profiling questionnaires were not on file or fully completed and suitability reports not matching the information recorded in customer factfinding in 16 per cent of cases reviewed.

A second review conducted by different external consultants in the fourth quarter of 2011, reported in early 2012 that in 39 per cent of a sample of 59 investment sales the suitability of the recommendation was unclear, in particular inadequate risk profiling and a failure to consider capacity for loss.

The external consultants advised Santander that the weaknesses needed to be addressed immediately because they would be of “significant concern” to the FCA.

In addition to these reviews, between August 2011 and August 2012 Santander used an external third party to conduct 66 mystery shops of its investment sales process.

While Santander issued communications in relation to some of the issues seen in the mystery shops and took steps to develop, discipline, and, in appropriate cases, de-authorise advisers, Santander did not aggregate the results to provide a holistic view of the issues, the FCA said.

If Santander had aggregated the results, it would have found that more than 60 per cent of advisers subject to mystery shops failed the assessment so far as Santander’s sales process was concerned.

It would would have uncovered that:

• only 65 per cent of the mystery shop recommendations were suitable;

• in 18 per cent of the mystery shops recommendations were unsuitable;

• in 17 per cent of the mystery shops the suitability of the recommendation was unclear; and

• the mystery shops highlighted potentially wider, underlying issues in relation to the investment sales process and its implementation by advisers.

Nine of Santander’s mystery shops took place between August and September 2012 following the introduction of the new processes designed to remedy the deficiencies highlighted in 2011.