HSBC Fined $16.4 Million for Selling Bonds to Elderly

By Linda Young

London, United Kingdom

Britain's financial regulator fined HSBC $16.4 million and ordered the bank to compensate 2,485 elderly customers $46 million for selling them unsuitable bonds.

The fine was the biggest imposed by the Financial Services Authority (FSA) on a bank.

The HSBC subsidiary NHFA Ltd. advised elderly customers from 2005 to 2010 to invest a combined $447 million in 5-year bonds to pay for their long-term care. The bonds are unsuitable to the customers because their life expectancy is shorter than five years, according to FSA.

"The advice and sales were unsuitable because in a number of cases the individual's life expectancy was below the recommended five-year investment period. As a result customers with shorter life expectancies had to make withdrawals from these investments sooner than is recommended. The combination of withdrawals and product charges led to faster reduction of capital than should have been the case if customers had received the right advice. A review by a third party of a sample of customer files found unsuitable sales had been made to 87% of customers involving these types of investments," the FSA said on its website.

FSA added that the average customer age was almost 83 and they therefore had limited means or opportunity to make up any financial loss resulting from an unsuitable sale.

"This penalty should serve as a warning to firms that they must have the right systems and controls in place to manage and identify risks when they acquire new businesses. A failure to do so can lead not only to detriment to their customers but to significant reputational and regulatory cost," the FSA said.

 

UK central bank holds interest rates at record low 0.5 percent

London, United Kingdom

Bank of England's Monetary Policy Committee voted to hold interest rates at the historic low of 0.5 percent.

Analysts had expected the rate setting body to keep the central bank's key interest rate where it was. In addition, the Bank did not announce any new quantitative easing.

Data released earlier this week revealed that output in both industrial production and manufacturing fell more than expected in October. Moreover, gross domestic product during the three months to November grew weakly at the pace of 0.3 percent, according to estimates by the National Institute for Economic and Social Research.

Furthermore, analysts say that tighter liquidity facing banks coupled with the ongoing economic crisis in the eurozone make the UK vulnerable to recession.