Barclays faces huge fine over investment sales

Barclays was yesterday hit with the City watchdog's biggest fine yet for retail failings after it misadvised potentially thousands of people who bought two risky investment funds from the bank.

Bob Diamond's company – which is trying to boost its retail business to balance earnings from its volatile investment bank – has been ordered to pay £7.7m in fines plus up to £60m more in redress to customers who were badly advised to buy the Aviva Global Balanced Income Fund and the Aviva Global Cautious Income Fund.

The fine would have been £11m had Barclays not settled the case early.

The two funds were sold to 12,331 people who invested £692m between July 2006 and November 2008. Not long after, they both plunged in value, losing as much as a third as the financial crisis took hold. The FSA said many of those who bought them were either at or close to retirement and 1,730 complained to the bank about the advice they received. That amounts to one in every seven people who bought the funds. Many of them cashed their investments in earlier than intended as the crisis gripped the financial markets and lost heavily as a result.

The FSA sharply criticised the bank for advice given, the promotional material it put out, the training provi-ded to financial advisers and the way it monitored the sales they made. The watchdog also said that even though Barclays had identified "potentially unsuitable sales" as early as June 2008, it failed to take "appropriate and timely action".

An investigation that was carried out into the business found 3,099 sales of the Cautious Fund (51 per cent) and 3,378 of the Balanced Fund (74 per cent) were identified as "requiring further consideration" and possibly redress. So far, the bank has paid £17m in compensation with up to £42m more set to follow.

Margaret Cole, the watchdog's head of enforcement and financial crime, said: "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."

Barclays will be thankful the fine was released after Mr Diamond endured a bruising encounter before the Treasury Select Committee.

Paul McNamara, managing director of insurance and investments, said: "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."