Bradford & Bingley fined over precipice bond sales

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The Independent Online

The Financial Services Authority continued its Christmas enforcement drive yesterday, landing Bradford & Bingley with a £650,000 fine for the "widespread" mis-selling of precipice and with-profit bonds two years ago.

The Financial Services Authority continued its Christmas enforcement drive yesterday, landing Bradford & Bingley with a £650,000 fine for the "widespread" mis-selling of precipice and with-profit bonds two years ago.

The penalty is the seventh fine handed out by the FSA in a week, netting the regulator a total of £1.69m in just seven days.

B&B's penalty relates to a series of sales made between January 2001 and December 2002, where the bank's financial advisers did not highlight the risks of the products they were selling to investors. B&B has agreed to pay £6m in compensation to the 6,800 customers affected, in addition to its fine.

As well as criticising B&B for failing to give good advice, the FSA also said it did not keep adequate records of its sales, and did not have inadequate systems and procedures in place to prevent such mis-selling.

The FSA said the case was made more serious because B&B had already been warned by the regulator, about the poor quality of its customer records, on a number of occasions from 1998 onwards.

Commenting on the fine yesterday, 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, [B&B] was the largest [independent financial adviser] in the UK and its brand had widespread public recognition which raised among 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, [B&B's] advisers sold precipice and with-profits bonds without having in place adequate systems and controls to ensure the products sold were suitable."

Last year, Lloyds TSB was fined £1.9m for the mis-selling of precipice bonds, and was ordered to pay a further £98m in compensation. Precipice bonds are investments whose performance is linked to an index or basket of stocks, and which guarantee to pay a certain level of return except in the case where the underlying investment falls by a significant amount, and fails to recover before the bond matures. Many advisers played down the risks, marketing them as guaranteed. However, most precipice bonds sold between 2000 and 2002 lost investors at least half of their money, due to the severity of the bear market.

SEVEN FINES IN SEVEN DAYS

22 December - FSA fines Bradford & Bingley £650,000 for mis-selling, and B&B agrees to pay a further £6m in compensation

21 December - Axa SunLife is fined £500,000 for misleading advertising

21 December - Robert Bonnier and his former employer, Indigo Capital, are fined £290,000 and £65,000 respectively for market abuse

20 December - Read Independent Financial Advisers is fined £150,000 for "serious defects" in its sales process

16 December - Robin Hutchings fined £18,000 for insider dealing. Jason Smith fined £15,000 for passing on inside information

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