RBS embroiled in £70m mis-selling scandal

RBS Group is offering compensation to 24,000 customers, including some Which? members, after admitting to widespread mis-selling of complex 'structured deposit' investments, Which? can exclusively reveal.

Between 2009 and 2013, Royal Bank of Scotland (RBS) and NatWest - part of the same banking group - sold the 'Autopilot Bond' to customers through its financial planning and private banking services.

Despite a smooth-sounding name, the bond was hideously complex - promising to pay interest based on the performance of multiple stock markets, as well as commodity and property markets, over a five-year period.

The bonds were deemed to be 'low risk' because your money wasn't invested directly in the markets and you didn't have to risk your capital. So if the markets tumbled, you'd at least get your deposit back at the end of the term. It was also protected by the Financial Services Compensation Scheme.

Attracted by the prospect of higher rates than the dismal cash-savings market, and reassured by the protection from losses, savers piled at least £70m into these products.

We believe the total could be significantly higher, though RBS wouldn't confirm the overall amount invested.

One Which? member was talked into depositing £8,000 of her retirement savings into the bond in 2009, following a home visit from a NatWest adviser.

Another parted with £15,000 of his voluntary redundancy money and told us: 'It's a complicated product and I was probably not the right sort of person they were aiming at.'

Find out more:Bank account customer satisfaction - dozens of accounts rated

RBS failed to explain product properly

RBS told us: 'Autopilot is a complex product, and in the past we offered it to customers who may not have been able to fully understand it. The complexity meant we may not always have properly explained it to customers. We are very sorry that this happened.

'We've been taking a proactive approach to communicate with all 24,000 customers (the vast majority of whom have now been contacted) who were sold this product through our Financial Planning and Advice service.

'Some of these customers may have understood this product, but we are giving all of these customers the option to consider switching to a fixed interest rate, to close their Autopilot product and get an interest payment or to remain on the product with its current terms and conditions, if they are happy with it.'

The product is no longer on sale and RBS advisers have been retrained. Affected customers are being offered compensation in the form of backdated fixed interest until the bond matures. Alternatively, they can stick with it, or close their bond without penalty, and will be paid backdated interest from the time they opened the bond to the time they closed it.

Both Which? members who contacted us have been offered annual interest fixed at 4.01%, but RBS told Which? that interest offered will differ depending on when the bond was sold.

What are structured deposits?

For cautious savers who want decent returns without having to risk it all on the stock market structured deposits appear to fit the bill. They pay an interest rate based on the performance of a stock market, without actually being invested in shares.

The attraction is the possibility of higher stock-market linked returns, but without the risk of losing money in shares. So if the markets perform poorly, you'll at least get your original investment back.

Which? has been a vocal critic of these products. We believe they are a poor halfway-house between saving and investing, and too complex for cautious savers.

Firstly, as you are not investing directly in the stock market you won't benefit from dividend payments as you would if you invested in shares. Potential growth is also often capped - for example, some of the RBS 'Autopilot' bonds limited growth to 6.25% in any one month.

Liquidity is another issue as you must lock your money away, typically for five years, and may face hefty penalties for closing the account early. Crucially, the guarantee applies only to your capital, not investment growth, so it is possible that you won't make any money at all. Even worse, by the time the account matures, inflation may have reduced its spending power significantly.

If you own a structured deposit, the potential pitfalls may not have been explained to you properly. Firstly, because you are not investing directly in the stock market you won't get dividends as you would if you invested in shares. Potential growth is also capped, for example, some of the RBS 'Autopilot' bonds limit growth to 6.25% in any one month yet there is no cap on losses (aside from your deposit) so you never enjoy the full benefit.

Liquidity is another issue as you must lock your money away, typically for five years, and may face hefty penalties for closing the account early. Crucially, the guarantee applies only to your capital, not investment growth, so it is possible that you won't make any money at all. Even worse, by the time the account matures, inflation may have reduced its spending power significantly.

Find out more:Different types of investment - learn about the options available for you

Structured deposit fines

This isn't the first time the sale of these baffling products has landed banks and building societies in hot water.

Credit Suisse (£2.4m) and Yorkshire BS (£1.4m) were fined in 2014 - Which? first raised concerns about these investment products in 2010 - while Santander was fined £1.5m in 2012 for problems with the way it promoted and sold similar products. The regulator refused to say whether it would fine RBS.

If you think you may have been mis-sold a structured deposit, you should contact the provider and complain. Find out how to complain with our expert guide.

A version of this story first appeared in the June 2015 edition of Which? Money magazine

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