Bank of Scotland is to pay a £3.5m fine after wrongly advising thousands of customers – many of them pensioners – to invest in risky stock market-linked savings plans and then unfairly rejecting their complaints.
The size of the fine, one of the largest penalties ever handed to a retail bank by the Financial Services Authority, reflects the failure of the bank to properly investigate the cases of customers mis-sold the products – almost half of those who then sought help from the independent Financial Ombudsman Service had the rejection of their complaints overturned.
Tracey McDermott, the FSA's acting director of enforcement and financial crime, said the regulator had also been particularly concerned about the case because so many "vulnerable" older people had been caught up in the mis-selling of the risky savings plans.
"The firm's failure to ensure it had a robust complaints handling process in place led to a significant number of complaints being rejected when they should have been upheld," she said.
"Had Bank of Scotland undertaken effective root-cause analysis of the complaints it received and had adequate processes in place to feed back lessons learned from the past complaints, it could have acted sooner."
During the 27 months to the end of October 2009, Bank of Scotland received 2,592 complaints about sales of a string of similar savings products, only to wrongly reject large numbers of them. A subsequent review of the cases by the bank revealed 45 per cent of the complaints should have been upheld.
In addition to the FSA fine, the bank has already paid compensation of £2.4m to customers caught up in the crisis, but expects to pay further redress of £15m after a review of more than 8,600 sales. The bank has promised to complete the review by the end of July and yesterday apologised for its behaviour. It has also overhauled its complaints handling process.
"We recognise that on this occasion we have fallen short of the high standards of service our customers should be able to expect of us and we apologise to them for this," said Ray Milne, the bank's risk director.
The Bank of Scotland fine comes at an unfortunate moment for the financial services industry, with regulators still considering whether to impose tougher rules on complaints handling. A consultation paper published by the FSA earlier this year includes proposals to force banks and other financial firms to disclose much more detail about the complaints they receive, which the regulator would then make publicly available to customers.
However, Peter Vicary-Smith, the chief executive of the consumer group Which?, said the Bank of Scotland case proved the FSA's proposals did not go far enough.
Which? has called for more enforcement action against the heads of complaints departments at the banks, as well as for new requirements to link boardroom pay and bonuses to complaints handling data.
"Not only was Bank of Scotlandmis-selling investment products to vulnerable consumers, then unfairlyrejecting their complaints, it was doing so while being bailed out by the taxpayer," said Mr Vicary-Smith.
"This case reaffirms the need for a fundamental overhaul of the way the banking industry deals with complaints."
The largest FSA fines
JP Morgan Securities Fined £33.3m last June for failing to ensure proper segregation of clients' money.
Goldman Sachs Fined £17.5m last September for failing to keep the Financial Services Authority appraised of an SEC investigation into its activities during the credit crisis.
Barclays Bank Fined £7.7m in January for the investment advice given to more than 12,000 customers to whom it sold savings plans.
Bank of Scotland Fined £3.5m yesterday for complaints handling failures.
Royal Bank of Scotland and NatWest Bank Fined £2.8m for a series of failures to properly investigate customers'complaints.
Zurich Insurance Fined £2.275m last August after the loss of personal details of 46,000 customers.
Société Générale Fined £1.575m last August for a series of transaction reporting failures.