HSBC fined 'record' £10.5m for mis-selling

After PPI, it's the (less acronym-friendly) asset-backed bonds to help the elderly pay for care scandal. Not helpful to banks' shattered reputations.

by Emma Haslett
Last Updated: 22 Feb 2012
As if the British banking sector didn’t already have serious reputation issues to content with, one of the UK’s largest financial institutions has now been fined a record £10.5m after one of its subsidiaries was found to have done the corporate equivalent of fleecing old ladies out of their life savings. Yep, HSBC apparently sold nearly 2,500 customers asset-backed bonds designed to help them pay for the cost of their care – but, as the Financial Services Authority put it, many of the products sold were ‘unsuitable’. Ie. half of the bonds were for terms longer than its customers’ life expectancies.

This is all centred around the bank’s NHFA division. NHFA was an independent financial adviser focusing on products designed to help the elderly pay for their care, until it was acquired by HSBC in 2005. The average age of its customers, though, stayed at roughly 83.

According to the FSA, between July 2005 and July 2010 NHFA managed to persuade its customers to part with £285m– an average of £115,000 per customer. The problem is, though, that in many cases, while the bonds’ recommended investment terms were five years, customers’ life expectancies were significantly shorter. And the FSA pointed out that there wasn’t a consistent approach to assessing customers’ attitudes to risk, or identifying other, more suitable investments for those who weren’t expected to be around for much longer.

HSBC has, apparently, agreed to pay back about £29.3m in compensation – pretty paltry when you consider the original £285m that was invested in the bonds. Although, as the FSA added, quite a few of those who were fleeced have already shuffled off this mortal coil. More seriously, though, because of their age, those who are still around will find it harder to recover from any financial losses, by virtue of the fact that they don’t have much time in which to do it. So in that respect, it’s pretty scandalous.

To be fair to NHFA, the FSA also mentioned that it hadn’t received any complaints ‘suggesting any customers had been forced to leave their care homes’ as a result of buying up the bonds. So no pensioners were harmed (physically, at least) in the making of this investigation. Likewise, the division stopped taking new customers earlier this year, which suggests that HSBC put a stop to proceedings once it realised something was afoot. The bank has also said that it is ‘profoundly sorry’ for what happened.

Nevertheless – for a sector that’s still seeking to rebuild its shattered reputation, headlines like this certainly aren’t the right way of going about it.

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