The Financial Services Authority (FSA) has fined Bank of Scotland (BOS) £3.5 million for the mishandling of complaints about retail investment products – many from older customers with little or no experience of investment products.
Between 30 July 2007 and 31 October 2009, BOS received 2,592 complaints about its sales of the Collective Investment Plan, Personal Investment Plan, Guaranteed Growth Bond, ISA Investor and Guaranteed Investment Plan. BOS wrongly rejected a significant number of these complaints. An internal review by BOS on a sample of rejected complaints revealed that as many as 45% of the complaints it had handled should have been upheld rather than rejected.
The FSA’s investigation also found that:
- Complaints were not investigated properly, with BOS complaint handlers failing to take account of all relevant customer information;
- Complaints were not assessed competently and fairly and poor decisions were made on whether the investments were suitable for customers who complained;
- BOS failed to adequately analyse trends in its own complaints decisions and those made by the Financial Ombudsman Service (the Ombudsman). As a result, complaint handlers were not always aware of emerging issues; and
- BOS failed to carry out timely and effective analysis of the root causes of the complaints it received to enable it to identify and remedy any issues in its processes. Had BOS done so, it would have identified sooner than it did ways to improve its processes. For example, it could have taken faster action to improve the documentation and evidence around the discussion concerning the risk profiling tool used by the firm to assess customers’ attitude to investment risk.
BOS was alerted to concerns about its handling of complaints at an early stage because the Ombudsman was overturning around 46% of BOS’s decisions to reject complaints.
To date, BOS has paid £2.4 million in compensation to customers whose complaint was upheld following its own internal review. It is expected that further compensation of around £15 million will be paid to customers once the further reviews have been completed.
Tracey McDermott, the FSA’s acting director of enforcement and financial crime, said:
“This fine reflects BOS’s serious failure to treat vulnerable customers fairly. The firm’s failure to ensure it had a robust complaint handling process in place led to a significant number of complaints being rejected when they should have been upheld.
“Had BOS undertaken effective root cause analysis of the complaints it received and had adequate processes in place to feedback lessons learned from past complaints, it could have acted sooner to improve its processes.
“This is the second firm to be fined following the FSA’s review of complaint handling in major banks. The review has led to many banks taking significant action to ensure they handle consumer complaints fairly. The FSA will continue to undertake further intrusive assessments of the banks that remain a concern and we will not hesitate to take further regulatory action if improvements are not made.”
BOS has improved its complaint handling arrangements and made changes to its processes. It is also carrying out a wide ranging review of advice-related complaints that it rejected between 1 February 2004 and 31 December 2009. It has also proactively agreed to carry out a targeted review of its sales of investment products to around 8,000 customers who were classified as having a cautious attitude to investment risk under the firm’s risk profiling tool in use from 30 July 2007 to 1 March 2010. BOS has identified all of the customers whose complaint or sale will be reviewed and will pay compensation to customers where appropriate.
Background
- The Final Notice for Bank of Scotland.
- The FSA review of complaint handling in banking groups.
- The FSA has previously taken enforcement action for complaint handling failings against RBS and NatWest.
- The FSA is expected to publish its new complaints handling rules imminently. This is as part of a package of measures to drive up standards within the industry and ensure prompt and effective redress for customers. See consultation paper.
- The FSA's report, 'Assessing suitability: Establishing the risk a customer is willing and able to take and making a suitable investment selection' looks at the role played by risk-profiling tools and tool providers and includes guidance for firms providing investment advice or discretionary management services to retail customers. See report.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
