The FSA has fined Barclays £7.7m for failures relating to the sale of the Aviva Global Balanced Income fund and the Global Cautious Income fund.
The FSA says Barclays is facing a compensation bill of up to £42m on top of the £17m it has already paid out to investors.
Between July 2006 and November 2008, Barclays sold Aviva’s Global Balanced Income fund and the Global Gautious Income fund to 12,331 people with investments totalling £692m.
The value of the fund plunged by almost 50% in the 12 months to March 2009 and the bank admitted it erroneously categorised the fund as balanced rather than adventurous between July and November 2007.
The FSA says there were a number of serious failings in the way the funds were sold, including a failure to ensure the funds were suitable for customers in view of their investment objectives, financial circumstances, investment knowledge and experience.
Barclays also failed to ensure the training given to sales staff adequately explained the risks associated with the funds, failed to ensure product brochures and other documents given to customers clearly explained the risks involved and could not mislead customers and failed to have adequate procedures for monitoring sales processes and responding promptly when issues were identified.
The fine is the highest fine imposed by the FSA for retail failings
The FSA’s investigation revealed that even though Barclays had itself identified potentially unsuitable sales as early as June 2008, it did not take appropriate and timely action.
Of the 12,000 or so investors, most of whom were retired or nearing retirement, 1,730 complained about the advice they were given to invest in the funds. This equates to approximately one in seven investors.
During the investigation, Barclays continued to carry out a past business review to evaluate the suitability of the sales of both funds. 3,099 sales of the Cautious fund, or 51% of all sold, and 3,378 of the Balanced fund, or 74%, have been identified as requiring further consideration. (article continues below)
As a result, Barclays has already paid approximately £17m in compensation and the FSA estimates up to an additional £42m could be paid to customers who received unsuitable advice.
The fine is the highest fine imposed by the FSA for retail failings.
Margaret Cole, managing director of enforcement and financial crime at the FSA, says: “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.
“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.”