Banking giant HSBC was landed with a record City fine today after a mis-selling scandal involving nearly 3,000 vulnerable elderly customers living in care.
Its NHFA subsidiary, previously known as Nursing Home Fees Agency, advised 2,485 customers, with an average age of 83, to buy into five-year bonds to fund their care, even though many of them were likely to die before the investment term was up, the City regulator said.
Around nine out of 10 of these customers, who on average invested £115,000 and in some cases would have sold a property to provide the cash, were deemed "unsuitable" for the product by a third-party review, the Financial Services Authority (FSA) said.
HSBC, which closed NHFA to new business in July, was fined £10.5 million by the FSA, its biggest retail penalty to date, and is expected to pay out £29.3 million in compensation. But the bank received a 30% discount on its penalty for flagging the shortcomings to the FSA.
Tracey McDermott, acting director of enforcement and financial crime, said NHFA, which had a 60% market share and was a leading provider of financial advice for long-term care investments, was trusted by its vulnerable customers.
She said: "HSBC, who owned NHFA, has now recognised the issues and taken steps to do the right thing. They have been given credit for that - but for some customers it will be too late."
The mis-selling took place between 2005 and 2010, during which time NHFA would have been regulated by the FSA.
The City watchdog said in a number of cases the individual's life expectancy was below the recommended five-year investment period and customers with shorter life expectancies had to make withdrawals from their investments sooner than recommended.
The products were sold to elderly individuals entering, or already in, long-term care and in many cases these elderly customers were reliant on the investments to pay for their care.
If a customer has since passed away, the compensation will be paid to their estate, the FSA added.
NHFA was acquired by HSBC in July 2005 and, until May 2010, was separately authorised and regulated by the FSA.
The company sold investment bonds through their families or representatives in the majority of cases.
The products were single-premium life assurance contracts, under which a lump sum was invested for the customer until the bond was either cashed in or until the death of the last life assured.
Brian Robertson, HSBC Bank chief executive, said: "I fully accept that NHFA failed to give suitable financial advice to some of their customers. This should not have happened and I am profoundly sorry that it did.
"We have high values here at HSBC and this runs contrary to everything that we stand for. That is why when we suspected something was not right at NHFA, we took action. We advised the FSA of our findings and closed NHFA to new business.
"We are undertaking a full review of the advice given to impacted customers and I can guarantee that every customer who is found to have not been treated fairly will not be disadvantaged.
"At this stage NHFA customers do not need to contact us. We will be contacting them directly during the coming weeks with the aim of putting things right as quickly as possible."