Bradford & Bingley has been fined £650,000 by the FSA for what it calls the widespread mis-selling of precipice and with-profit bonds.
This sizeable fine – along with an agreement to pay £6m in compensation to 6,800 customers – was imposed, says the Financial Services Authority, because the company had been warned on several occasions since 1998 there may be a problem with their recordkeeping and the advice being given to clients as a result.
The FSA says high street IFA brand Bradford & Bingley “did not make suitable recommendations to customers, did not maintain adequate records of sales, and did not have in place adequate systems and controls to prevent and ultimately address these failures” in relation to products sold between January 2001 and December 2002.
BBG was first made aware of problems with recordkeeping and compliance in October 1998, argues the FSA, following a visit by Personal Investment Authority officials – regulatory authority prior to the FSA - but BBG believed it had rectified the problem.
Then in February 2001, BBG arranged for an independent third party to review its sales of with-profit bonds and a series of reports was issued as a result of the review however that study revealed IFAs did not appear to be conducting full financial analysis of customers' circumstances, sales reviewers were not taking a holistic approach to checking and that there were inconsistent standards and inadequate or unused procedures in the checking process, says the FSA, who then asked to see the
Closer analysis of the BBG study suggested there could have been cases of mis-selling given problems with its compliance procedures and paperwork, so the FSA began a dialogue with the firm about the possibility of compensation payments.
The substantial fine imposed on BBG is the result of errors earlier in proceedings, says Andrew Proctor, director of enforcement at the FSA, as the company was aware of problems and then co-operated fully with the FSA from August 2002 onwards, once senior management were aware of the problem.
"This is a very serious case of mis-selling which was made worse by the fact that Bradford and Bingley had prior warning of the specific concerns about its record keeping. However, the firm failed to pay sufficient attention to these warnings and take adequate action, which put thousands of its customers at risk of financial loss,” says Proctor.
"During the period in question, BBG was the largest IFA in the UK and its brand had widespread public recognition which raised amongst its customers the expectation that the service it provided to them would be of a high standard. Customers therefore went to the firm with the expectation that it would provide a competent and professional financial advisory service. However, BBG's advisers sold precipice and with-profits bonds without having in place adequate systems and controls to ensure the products sold were suitable,” adds Proctor.
This is not by any means the largest fine imposed on a company seen to be mismanaging precipice bond sales.
Lloyds TSB was hit with a £1.0m fine and ordered to pay compensation totalling just under £100m after the FSA found “a number of unsuitable sales” of a high income equity-linked bond through its branch network.
Capita Trust/a> also received a £300,000 FSA fine for mis-selling precipice bonds while David Aaron had his permission to give investment advice removed once the firm closed on the back of precipice bonds mis-selling liabilities.IFAonline
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