By Max Clarke
The Financial Services Authority (FSA) has fined Barclays Bank plc (Barclays) £7.7 million for failures in relation to the sale of two funds. Barclays will contact customers and pay redress where appropriate.
Between July 2006 and November 2008 Barclays sold Aviva’s Global Balanced Income Fund (the Balanced Fund) and Global Cautious Income Fund (the Cautious Fund) to 12,331 people with investments totalling £692 million.
However, there were a number of serious failings in the way the funds were sold. These include:
* Failing to ensure the funds were suitable for customers in view of their investment objectives, financial circumstances, investment knowledge and experience;
* Failing to ensure that training given to sales staff adequately explained the risks associated with the funds;
* Failing to ensure product brochures and other documents given to customers clearly explained the risks involved and could not mislead customers; and
* Failing to have adequate procedures for monitoring sales processes and responding promptly when issues were identified.
The FSA’s investigation revealed that even though Barclays had itself identified potentially unsuitable sales as early as June 2008, it did not take appropriate and timely action.
In fact, of the 12,000 or so investors, most of whom were retired or nearing retirement, 1,730 complained about the advice they were given to invest in the funds. This equates to approximately one in seven investors.
During the investigation Barclays continued to carry out a past business review to evaluate the suitability of the sales of both funds: 3,099 sales of the Cautious Fund (51% of all sold) and 3,378 of the Balanced Fund (74% of all sold) have been identified as requiring further consideration.
As a result Barclays has already paid approximately £17 million in compensation and the FSA estimates up to £42 million further could be paid to customers who received unsuitable advice.
Margaret Cole, the FSA’s managing director of enforcement and financial crime, said:
“The FSA requires firms to have robust procedures in place to ensure any advice given to customers is suitable. Therefore, when recommending investment products, firms should take account of a customer’s financial circumstances, their attitude to risk and what they hope to achieve by investing.
“On this occasion however, Barclays failed to do this and thousands of investors, many of whom were seeking to invest their retirement savings, have suffered. To compound matters, Barclays failed to take effective action when it detected the failings at an early stage.
“Because of this, and given Barclays’ position as one of the UK’s major retail banks, we view these breaches as particularly serious and fully deserving of what is a very substantial fine.”
The fine is the highest fine imposed by the FSA for retail failings.