Publications
Partners
London - HSBC has set aside $149m to review how it advised about 200 000 UK customers on investing a lump sum of money, the first British bank to do so and signalling another potential costly mishap for lenders.
HSBC chief executive Stuart Gulliver said on Monday about $120m of the money set aside will pay for the cost of its review, indicating only a fifth of the provision had been earmarked for customer compensation.
It follows a "mystery shop" or undercover review by Britain's financial regulator to check on investment advice at six major lenders released in February. That found unsuitable advice had been given 11% of the time and firms did not gather enough information in a further 15% t of cases.
One of the companies was put under investigation for possible investment advice failures, which could result in a fine. That firm was Santander UK, four industry sources told Reuters at the time.
HSBC is the first bank to specifically set aside money for the issue, included in third-quarter results.
"The Financial Conduct Authority (FCA) has said that suitability failures have been widespread in the industry, so it is unlikely that HSBC are alone," said Rob Moulton, partner at law firm Ashurst.
The regulator's study concluded that banks should review their past business "to identify historic poor advice and put this right for customers". Banks were told to employ an independent company to carry out or oversee the work.
HSBC hired Grant Thornton to review its sales.
"The outcome of that is we need to go back to 2008 and check how we sold wealth management products to about 200,000 clients," Gulliver said.
He said his bank was being "prudent" by stripping out the operational cost of doing the process. It was not clear if other banks faced similar costs and, if so, would strip them out or just include them in routine operational costs.
Santander UK, Lloyds, Barclays, RBS and Nationwide declined comment. The FCA has not named the six banks in its review, and said the scale of poor advice varied significantly. The FCA declined to comment on its work.
Any compensation or operational costs would add to more than 20 billion pounds set aside by Britain's big lenders in recent years to compensate customers mis-sold payment protection insurance (PPI), the costliest scandal to ever hit the industry, and for mis-sold interest rate hedging products.
HSBC's provision was part of $428m it set aside in the latest quarter for UK customer redress.
British banks have restructured their wealth management operations and most only offer advice to customers with over £50 000 to invest, following new rules introduced this year aimed at ensuring advisers are better trained and fees for financial advice are more transparent.
Lawyers said the FCA, faced with spiralling demands on its resources, is increasingly using its powers to force firms to pay for reviews in a more interventionist approach to protect consumers.
