HSBC mis-sold bonds to elderly investors

| December 5, 2011 | 0 Comments
HSBC mis-sold bonds to elderly investors

HSBC subsidiary NHFA, which offered advice on financial provision for people in long-term care, has been fined £10.5m by the Financial Services Authority (FSA).

NHFA was found to have mis-sold asset-backed investment products to 87 per cent of 2,485 elderly people or their representatives, who bought the products to fund care costs.

The products were sold between 2005 and 2010, to people either entering, or already in, long-term care.

NHFA’s customers invested an average of £115,000, generating a total investment of around £285 million.

The average age of NHFA’s customers was around 83 years and in some cases life expectancy fell below the recommended five-year investment period.

This meant that withdrawals had to be made too soon and this, coupled with product charges, led to investors’ capital being reduced faster than it would have been if more suitable products had been recommended.

NHFA was also found to have failed to consider its customers’ tax status.

The £10.5 million fine is the FSA’s largest retail fine to date and it is estimated that an additional £29.3m in compensation will be paid.

HSBC closed NHFA to new business on 1 July 2011, stating on its website 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”.

Tracey McDermott, the FSA’s acting director of enforcement and financial crime said: “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”.

With banks involved in a number of mis-selling scandals in recent years the FSA’s director of banking, Andrew Bailey, recently warned that the ‘illusion’ of free banking has led to other products being mis-sold.

Mr Bailey said that banks should charge for ‘free-if-in-credit’ current accounts, in order to avoid the cost having to be levied on other products, often inconsistently.

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