Record fine over long-term care adviceFSA imposes £10.5m penalty for NHFA failings

05 December 2011

Elderly clients require specialist financial advice, particularly for funding care. 

NHFA, a subsidiary of HSBC, was guilty of mis-selling long-term investment bonds to thousands of clients from 2005 to 2010 according to an FSA ruling. The bank has now closed NHFA and expects to pay compensation of £29.3m. 

FSA exposes widespread mis-selling 

The Financial Services Authority (FSA) found evidence of widespread mis-selling by NHFA, a leading source of financial advice on long-term care. Between July 2005, when HSBC acquired NHFA, and July 2010, 2,485 elderly customers were advised to invest a total of £285m in asset-backed investment products, typically investment bonds, to levels which were not suitable for those funding long-term care. 

The FSA's report says there was 'inadequate diversification of investments and savings plans' and that 'customers were given recommendations to invest a high proportion of funds into asset-backed investments with only a small amount of funds left readily available to them on deposit'. 

Elderly customers were then obliged to make high levels of withdrawals, 'which led to faster reduction of capital that should have been the case if customers had received the right advice.'

Bank acknowledges failings     

Acknowledging the gravity of the FSA charges, HSBC chief executive, Brian Robertson 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.'

Commenting on the case, FSA acting director of enforcement and financial crime, Tracey McDermott said: 'NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products. This type of behaviour undermines confidence in the financial services sector.

'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.

'This penalty should serve as a warning to firms that they must have the right systems and controls in place to manage and identify risks when they acquire new businesses. A failure to do so can lead not only to detriment to their customers but to significant reputational and regulatory cost.'

Customers to be contacted

NHFA customers do not need to take any immediate action. Chief executive, Brian Robertson said: '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.'

The bank has set up a customer contact number for anyone who has questions relating to NHFA asset-backed investments: 0800 917 8072.   

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