HSBC has been handed down a record retail fine of £10.5 million by the Financial Services Authority for mis-selling certain investment products to elderly clients by one of its subsidiary companies.

The FSA deemed that NHFA Limited (NHFA) gave inappropriate advice to elderly and vulnerable customers and apart from the fine HSBC will have to stump up approximately £29.3 million in compensation.

The mis-selling took place over five years between 2005 and 2010 and involved 2,485 customers being advised to put their money into asset-backed investment products like investment bonds to fund long term care. Normally these types of investments are recommended for a period of a minimum of five years.

But some of the customers were already in long term care and had life expectancies of less than the recommended five year term.

These customers therefore lost money when they needed to take their money early.

According to the FSA ‘A review by a third party of a sample of customer files found unsuitable sales had been made to 87% of customers involving these types of investments.’

HSBC shut NHFA down to new business from the 1st July 2011 saying that ‘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. Unfortunately, this does mean that NHFA is now unable to offer any further financial advice. If you are an existing NHFA customer a letter will be sent to you shortly giving you further information.’

The FSA said that NHFA’s failings were ‘particularly significant’ as the company’s customer base was especially vulnerable, the company was a leading supplier to the elderly with a 60% market share, the mis-selling went on for five years and that a ‘significant number’ of customers may have suffered financially.

The acting director of enforcement and financial crime at the FSA, 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.

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