Watchdog Fines B&B $1m for Mis-Selling

Bradford and Bingley was today fined £650,000 (1 million USD) by the finance industry watchdog for mis-selling precipice and with-profit bonds.

Around 6,800 affected customers will now receive compensation totalling £6 million, the Financial Services Authority said.

The FSA issued the fine for the “widespread” mis-selling of the bonds – criticising the firm for not making suitable recommendations to customers, not maintaining adequate records of sales and not having in place adequate systems and controls to prevent and ultimately address these failures.

Precipice bonds – which offer high income returns, but fail to provide protection against the loss of the invested capital – have been the subject of several high profile reprimands issued by the watchdog recently.

LloydsTSB, Capita Trust Company and Chase de Vere Investments have all recently faced fines over the issue.

The B&B mis-sales, which occurred between January 2001 and December 2002, were made more serious because the firm had been warned that there were significant issues with the quality of its customer records on a number of occasions from 1998 onwards.

The firm failed to appreciate the significance of those warnings. The failings exposed 6,800 customers to a higher risk of financial loss than they were willing to accept, the watchdog said.

Andrew Procter, the FSA’s Director of Enforcement, said: “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.

“During the period in question, BB was the largest IFA (independent financial adviser) 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, B&B’s advisers sold precipice and with-profits bonds without having in place adequate systems and controls to ensure the products sold were suitable.

“The FSA has repeatedly stressed to firms through supervision and guidance the importance of keeping adequate records of sales but B&B failed to do so in these cases.”

Capita Trust Company were fined £300,000 for mis-selling precipice bonds, and David M Aaron Ltd had its permission to give investment advice following widespread mis-selling of the bonds withdrawn.

Lloyds TSB Bank plc (LTSB) were fined £1.9 million for a number of unsuitable sales of a high income equity-linked bond through the LTSB branch network – though the firm is to pay compensation of approximately £98 million in respect of 22,500 sales.

In another high-profile case, the FSA fined Chase de Vere Investments £165,000 for sending out misleading marketing literature on precipice bonds.