A fine of $16.4 million (10.5 million pounds) was imposed on Europe’s largest bank by market value—HSBC Holdings Plc—by the U.K.’s Financial Services Authority (FSA) for allegedly advising 2,485 elderly clients to purchase inappropriate financial products.
The products were sold through NHFA Limited, a subsidiary company of London-based HSBC.
The fine is the highest the FSA has slapped on a retail bank and is the fifth-largest amount issued in its 10-year history. The severe penalty is certainly sending shock waves throughout the industry, albeit HSBC paid 30 percent less than expected due to the extent of its cooperation with the authorities during the course of the investigation. There could also be additional financial penalties in terms of compensation—as much as $45.8 million (29.3 million pounds).
HSBC has been charged with giving faulty investment advice to “particularly vulnerable” elderly customers via HSBC’s NHFA subsidiary, according to Britain’s financial regulator. The key issue at stake is that the life expectancy of the majority of these customers was below the minimum recommended five-year investment period.
According to the NHFA website, it is “now unable to offer any further financial advice.” Also on its homepage (www.nhfa.co.uk), it stated that “Giving advice on financial provision for long term care needs is a specialized service which HSBC no longer feels is consistent with its main banking business.”
NHFA is the former leading U.K. supplier of independent financial advice on long-term care products to assist in paying care costs, with a market share in recent years of almost 60 percent, according to the FSA. NHFA has been closed to new business since July 1.
“This should not have happened and I am profoundly sorry that it did,” said Brian Robertson, chief executive of HSBC’s U.K. 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.”
The scope of the inappropriate selling has been traced back to 2005, when NHFA gave advice to 2,485 people to invest in bonds in order to pay for their long-term care costs. According to the FSA, “As a result, customers with shorter life expectancies had to make withdrawals from these investments sooner than is recommended,” which would have resulted in capital depleting at a more rapid rate than if alternatives were considered. According to a recent review, 87 percent of customers were sold the wrong financial product.
Tracey McDermott, FSA’s acting director for enforcement and financial crime, said, “NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products. This type of behavior undermines confidence in the financial services sector.”
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