The UK’s financial services authority has imposed its largest-ever fine for retail investment advice failures, slapping Barclays Bank plc with a £7.7 million ($12.08 million) fine.

The Financial Services Authority said Tuesday it has fined Barclays Bank for failures in relation to the sale of two funds.

The FSA said the bank’s violations included:
> failing to ensure suitability;
> failing to ensure that training given to sales staff adequately explained the risks associated with the funds;
> failing to ensure product brochures and other documents given to customers clearly explained the risks involved; and, > failing to have adequate procedures for monitoring sales processes and responding promptly when issues were identified.

The regulator reported that of the more than 12,000 investors who bought the two funds, most of whom were retired or nearing retirement, 1,730 complained about the advice they were given to invest in the funds. The FSA’s investigation also revealed that even though Barclays had identified potentially unsuitable sales as early as June 2008, it did not take appropriate and timely action.

In addition to the fine, Barclays will contact customers and pay redress where appropriate. The bank has already paid approximately £17 million in compensation and the FSA estimates up to £42 million in additional compensation could be paid to customers who received unsuitable advice.

“The FSA requires firms to have robust procedures in place to ensure any advice given to customers is suitable. Therefore, when recommending investment products, firms should take account of a customer’s financial circumstances, their attitude to risk and what they hope to achieve by investing. On this occasion however, Barclays failed to do this and thousands of investors, many of whom were seeking to invest their retirement savings, have suffered. To compound matters, Barclays failed to take effective action when it detected the failings at an early stage,” said Margaret Cole, the FSA’s managing director of enforcement and financial crime. “Because of this, and given Barclays’ position as one of the UK’s major retail banks, we view these breaches as particularly serious and fully deserving of what is a very substantial fine.”

Paul McNamara, managing director of insurance and investments at Barclays said the bank has cooperated fully with the FSA investigation and has accepted the fine. “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 from us, and for this we are sorry,” he added.

McNamara said the bank stopped selling the investment products in question two years ago, that it had improved its sales and advice processes, enhanced the documentation provided to customers, increased the level of supervision over advisors, and strengthened the training provided to advisors to include a stronger focus on product knowledge.

IE