LONDON — HSBC Holdings PLC was slapped with the biggest retail fine to date by the U.K. Financial Services Authority after the regulator found it sold unsuitable products to elderly customers.
HSBC must pay GBP10.5 million ($16.3 million) in a fine and a further GBP29.3 million ($45.7 million) to compensate customers who were advised to buy investment bonds that often matured later than the buyer's life expectancy.
The roughly GBP285 million ($444.4 million) in investments, advised for purchase by HSBC subsidiary NHFA Ltd., were meant to fund nursing home and other medical costs for customers about to enter or already in long-term care. They typically had a five-year investment period.
Up to 2,485 customers who bought the investments between 2005 and 2010 may have received poor advice based on their individual circumstances, the FSA said. HSBC first identified the problems in 2009 and reported them to the FSA. Without the bank's cooperation, the fine would have been 30% more.
"NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products. This type of behavior undermines confidence in the financial services sector," said Tracey McDermott, FSA acting director of enforcement and financial crime.
The failings included selling products to customers whose life expectancy was less than the investment period, arranging high levels of withdrawals near the start of the investments that eroded capital, and not being consistent in assessing customers' attitude to investment risk.
Brian Robertson, chief executive of HSBC Bank PLC said the incident "runs contrary to everything that we stand for."
"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," he said.
An HSBC spokesman said the issue involved only a small number of NHFA advisers who were not employed by HSBC.