5 Dec 2011

HSBC faces £40m payout after ‘inappropriate’ sales

The banking giant will pay almost £30m in compensation after its subsidiary mis-sold products intended to pay for long-term care to thousands of elderly investors.

The Financial Services Authority (FSA) issued its biggest retail fine after HSBC’s subsidiary, NHFA Limited (NHFA) “inappropriately” advised 2,485 customers to invest in “unsuitable” investment bonds between 2005 and 2010.

The product in question was aimed at helping investors pay for care home costs but the products were sold to people entering, or already in, long-term care and in many cases these elderly customers were reliant on the investments to pay for their care.

The FSA said the life expectancy of some of the customers meant they had to make withdrawals before the end of the five-year recommended term of the products. This meant they lost more money than if they had been able to wait.

We will be contacting customers with the aim of putting things right as quickly as possible. HSBC chief exec Brian Robertson

The customers should have been sold products which they could have withdrawn funds from with minimal penalties – products such as high-interest deposit accounts or tax-free Isas.

Serious, systemic failings

HSBC estimates it will need to pay £29.5m in compensation on average customer investments of £115,000.

The FSA said: “The failings in the suitability of advice were serious, systemic and persisted over a long period of time,” and were to the detriment of a vulnerable customer base whose average age was 83.

It explained why having to withdraw funds from investments before the end of their five-year life was detrimental to the investors: “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.

“High levels of withdrawals at the start of the investment, in particular, reduce the possibility of the investment growing in value to cover the charges incurred.”

The FSA also noted at the time the mis-selling occurred, NHFA was the leading supplier of independent financial advice for products to pay for long-term care and had a market share approaching 60 per cent and was highly trusted by its customers.

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.”

NHFA closed to new business in July 2011. A message on NHFA’s website stated: “Giving advice on financial provision for long term care needs is a specialised service which HSBC no longer feels is consistent with its main banking business.”

The FSA said if HSBC had not co-operated as significantly with the investigation as it did, the fine would have been significantly greater.

In November, the consumer group Which? revealed it had found that only five out of 37 advisers in banks and building societies gave what it termed “good advice”, while the majority of advisers showed a poor understanding of the risks and made misleading statements.

Job losses

Meanwhile, HSBC has also announced it is making over three hundred people redundant, blaming a “very challenging” economic environment.

The bank said the cuts will affect 232 workers in its commercial bank as its regional structure “consolidates” from nine to six, 20 in the retail bank in Northern Ireland and 58 in the technology services division.

Joe Garner, head of HSBC’s UK Bank, said: “Every effort is being made to support impacted employees and redeploy as many people as possible within the bank.”

Unions have condemned the redundancies, which were announced three weeks before Christmas, as “disgraceful”.