Royal Bank of Scotland fined £14.5m over unsuitable mortgage advice

City watchdog said only two of the 164 sales it reviewed between June 2011 and March 2013 met sales standards

State-backed Royal Bank of Scotland paid bonuses to its worst mortgage advisers and made just two compliant sales out of 164 reviewed between 2011 and 2012, the City watchdog said today as it levied a £14.5 million fine on the lender.

In a damning indictment of the bank and its subsidiary NatWest, the Financial Conduct Authority found that the most-risky salesmen could still receive bonuses even if all sales reviewed in a quarter by quality control staff were graded “non-compliant”.

The watchdog also found “no individual or team” had overall responsibility for mortgage advice, citing this as one of the major reasons that it took almost a year for improvements to be made from when the FCA’s predecessor, the Financial Services Authority, raised concerns in November 2011.

Salesmen even gave clients their own views on how interest rates would move. Asked if rates would rise, one said “yes absolutely” before warning that they could hit 5.5 per cent.

Recommending a five-year fixed mortgage, the adviser said: “If we don’t increase rates with this double-dip recession the economy is in dire straits. Rates will rise. If you take a two-year deal then rates will be higher after this period.”

More than two years later, rates remain at a historically low 0.5%. The salesman was ultimately de-authorised after being exposed by a mystery shopping exercise.

Such exercises revealed a catalogue of failings, with an RBS review finding two compliant sales out of 91 assessed while a further appraisal of 73 carried out by a consultant found not a single sale met compliance guidelines.

The FCA also found widespread problems with the bank’s IT systems. For example, advisers were restricted to just 500 characters in a text box to record the result of customer fact finding so they could assess the affordability of loans.

As a result of its failings, the bank will now have to write to 30,000 clients who may have been mis-sold loans.

FCA director of enforcement Tracey McDermott said treating customers fairly was of “critical importance”.

“Where we raise concerns with firms we expect them to take action to resolve them without delay,” she said.

RBS chief executive Ross McEwan took over retail at the bank in August 2012 a month before it finally addressed the issues. He said: “It is clear that in the past the bank just didn’t get this right. This was unacceptable.”

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