BARCLAYS, THE third-biggest UK bank, may have to pay as much as £66.7 million (€79.5 million) in fines and compensation for failing to disclose the risk in two funds it sold to thousands of retirees.
The bank was fined £7.7 million and may need to return as much as £59 million to customers who received bad investment advice, according to Britain’s Financial Services Authority.
The fine is the biggest imposed by the London-based regulator for retail deficiencies.
“The FSA requires firms to have robust procedures in place to ensure any advice given to customers is suitable,” Margaret Cole, the regulator’s managing director of enforcement, said in a statement. “Barclays failed to do this and thousands of investors, many of whom were seeking to invest their retirement savings, have suffered.”
The fine comes a week after Barclays chief executive Bob Diamond told parliament “the period of remorse and apology” for the credit crisis needs to end so banks can rebuild confidence.
The FSA earlier this month fined Royal Bank of Scotland Group and its NatWest Bank unit a total of £2.8 million for complaint-handling failures.
Barclays failed to ensure that Aviva’s Global Balanced Income Fund and Global Cautious Income Fund were suitable for customers and didn’t properly train sales employees from July 2006 until November 2008, the FSA said.
Barclays received complaints about its sales practices from 1,730 investors, or about one in seven of the funds’ 12,331 customers with investments totalling £692 million, the FSA said.
The bank, which has already paid about £17 million in compensation, found potential sales problems as early as June 2008 and failed to take “appropriate and timely action,” the regulator said.
“We know that on this occasion we let our customers down and did not do all we could have done to meet the high standards that our customers expect,” Paul McNamara, managing director of insurance and investments at London-based Barclays, said in a separate statement.
Barclays stopped selling the investment products two years ago and has been working with an accounting firm to determine how many customers were affected, Mr McNamara said.
Harriet Territt, a banking and financial litigation lawyer at Jones Day in London, said the fine represents the FSA’s “increasingly strict” approach to bank failures that hurt vulnerable customers, particularly retirees. The standard has been in place since 2006.
The fine “might be a concern to other banks, particularly where high levels of sales of consumer products were achieved during the boom years, and it was subsequently clear that these products were more risky” than customers were told, she said. – (Bloomberg)
