The Financial Services Authority, often called the City watchdog because of its role in financial scandals, has charged HSBC £10.5 million in its largest ever retail fine.
The bank stands accused of mis-selling investment bonds to elderly people in care, taking advantage of their vulnerable states.
An estimated 2,485 customers of NHFA, an HSBC subsidiary, were advised to invest in these bonds under the pretence that they were necessary to fund care costs.
87% of NHFA customers ended up purchasing this product as a result of “unsuitable sales,” triggering the FSA’s strictest fine to date.
The NHFA advisers accused of mis-selling were promoting products between 2005 and 2010, to pensioners who were already in care or entering long term care.
The average age of customers who were mis-sold bonds is 83, and they each invested an average of £115,000. Many relied on these investments to pay for their care.
These investments are usually recommended for five years, but many did not expect to live that long. The pensioners then started to withdraw from the investments sooner than expected, which triggered a series of withdrawals and charges. The FSA says that these charges made the investors’ capital dwindle much quicker than it would have if the products were sold properly.
The bank has made an apology, saying that it is “profoundly sorry” for the thousands of elderly people that have been negatively affected. HSBC estimates that it will pay an addition £29.3 million in compensation.
Though HSBC is blamed for the mis-selling, the bank claims that the mis-selling problem centers around 15 to 31 NHFA advisers who do not work for HSBC and do not advise on HSBC products. However, NHFA is a subsidiary of HSBC.
Before the scandal, NHFA were the leading financial advisers for elderly pensioners looking to fund long-term care. Their market share was a massive 60%.
HSBC says that after it identified the problems at NHFA, it closed the subsidiary to new businesses in July and alerted the FSA as soon as possible. A spokesperson from HSBC said that this was because the mis-selling at NHFA “runs contrary to everything that we stand for.”
The bank has also said that it will contacted those who suffered from the mis-selling in the coming weeks, and will be offering compensation.