The mis-sales, which occurred between January 2001 and December 2002, were made more serious because BBG 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.
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, BBG was the largest IFA 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, BBG'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 BBG failed to do so in these cases."
As a result of a Personal Investment Authority (PIA) monitoring visit in October 1998, BBG was made aware of failings in relation to the documentation of sales made by its advisers. The firm considered it had taken adequate remedial action and was receiving reports from external parties which indicated that the only major issue concerned documentation.
In February 2001, BBG arranged for an independent third party to review its sales of with-profit bonds and a series of reports was issued as a result of the review. The reports observed that advisers did not appear to be conducting full financial analysis of customers' circumstances, sales reviewers were not taking a holistic approach to checking and that there were inconsistent standards and inadequate or unused procedures in the checking process. Subsequently, the FSA requested copies of the reports and, at a meeting in August 2002, the FSA raised with BBG the potential risk that the failings might indicate mis-selling.
Once BBG became aware of the concerns it undertook further work to identify the extent of the problems. In September 2002 a further review identified an inconsistent approach to the assessment of customers' attitude to risk for sales of stock market linked investment products including precipice bonds. A further report, dated February 2003, commented on a review of sales of different products and highlighted significant and specific problems with the sales of precipice bonds casting serious doubt over the suitability of those sales. Both reports highlighted deficiencies in the quality of the files submitted by BBG's advisers, the approach of BBG's advisers towards gathering relevant client information in relation to sales of with-profit bonds, and the ability of the reviewers to identify such deficiencies.
BBG's failings merited a substantial financial penalty. In fixing the fine, the FSA recognised that BBG co-operated fully with the FSA since its senior management became aware of the issues in August 2002, and has made appropriate arrangements for compensation where a customer's attitude to risk was inappropriate for a precipice or with-profit bond. BBG has also conducted a thorough investigation into the circumstances surrounding the issues concerned, and fully reviewed its selling practices.
