Watchdog bares its teeth at banks

THOUSANDS of Bank of Scotland customers are to share up to 17 million compensation after watchdogs at the Financial Services Authority found the bank had sold investments inappropriately and then unfairly rejected claims for redress for the money that victims had lost as a result.

The watchdog's action is part of a crackdown on banks, which has seen Royal Bank of Scotland fined nearly 3m for failing to treat customer complaints seriously. This followed January's 8m fine for Barclays, which was also ordered to pay 60m compensation for mis-selling two investment funds.

These censures come on top of the 9 billion bill the banking industry faces for compensation to customers incorrectly sold credit insurance. Initially, the banks had sought to fight the FSA's tough approach to this mis-selling through the courts, only to surrender that battle last month.

It looks increasingly like the FSA is determined to end the cavalier approach of the banks towards their customers and stamp out rogue behaviour. To this end, as well as imposing fines and penal compensation, it has introduced stringent new rules about how the industry should deal with complaints, to ensure customers are not carelessly fobbed off in the future, as they have been in the past.

With banks accounting for 65 per cent of the million complaints initially taken to the Financial Ombudsman each year, some might argue that the new rules are arriving not a day too soon.

Bank of Scotland's record 3.5m fine relates to the sale of investment products. These were primarily stock market-linked. When the credit crunch broke, sending markets reeling around 2007, the bank received 2,600 complaints from investors who said they had not understood their money was invested in products which were so risky and exposed to a crash.

Some complaints were genuine. The funds had been sold to elderly investors, as well as the financially unsophisticated, or consumers with little other money for whom such an investment was inappropriate. But the bank rejected nearly half of the appeals, almost as a matter of course. In doing so, it was plainly in the wrong.

This arrogance came to light when some of the rejected victims took their complaints to the Financial Ombudsman, which upheld their arguments in nearly half of cases. The Ombudsman reported this failure to the FSA, which swung into action.

Following its intervention, the bank has agreed to review 8,614 rejected complaints relating to investment advice received between 1 February, 2004, and 31 December, 2009, that were not upheld or not subsequently referred to the Ombudsman, in order to ensure that all customer complaints have now been treated consistently.

If it finds their complaints were wrongly rejected it will pay redress, which is expected to come to 17m.The bank has also agreed to review its records of nearly 8,000 other investment sales between 30 July, 2007, and 1 March, 2010. If the sale cannot be justified, these customers will also be compensated.

So were you wrongly sold an investment, and are you due compensation? Was your complaint mishandled? How do you know if you are now in line for compensation? We answer your questions.

Q: Who is affected?

A: The investments concerned include the Collective Investment Plan, which invested in a range of stock market funds, and Isa Investor, which was the Isa equivalent.

Other accounts include a Personal Investment Plan, a life assurance bond also investing in stock market funds; a Guaranteed Growth Bond, a short- term life bond lasting a year or two and paying a fixed interest rate; and Guaranteed Investment Plan, a life bond investing in equities and gilts but with a guarantee of money back after five years.

Q: How do you know if you were mis-sold?

A: If you have had a complaint rejected, then you may have been unfairly treated. But if your investment has fallen in value, but the risks of investing in stock markets were never explained to you, then you might have grounds for complaint.

Vulnerable investors may also have legitimate grievances. Stock market investments are sophisticated long-term holdings. If you are mentally no longer able to cope with such decisions, or by virtue of your age have a shorter time horizon, then you may have been mis-sold.

Similarly, if you have never before owned stock market investments or have little other savings, the risk profile might have been inappropriate for you. This too is a legitimate complaint.

Q: What do you do next?

A: The bank says customers do not need to take any action; all affected cases have been identified and it is contacting customers who had their complaints wrongly declined during this period.

Can you trust this? I wouldn't. Pro-actively contact the complaints division.

Q: Were all of the complaints wrongly rejected?

A: No. Just because you are invested in a stock market fund or bond which falls in value does not constitute a mis-sale. Consumers have no right to redress simply because an investment does not perform as they might have wished.

It is only a mis-sale if you should never have been sold the investment in the first place. If you have other stock market investments, understand the way they work, and had indicated you were prepared to expose your savings to a degree of risk, then you are unlikely to be due compensation.

Q: If your complaint fails again, what should you do next?

A: Complain to the Ombudsman. There is guidance on how to complain on its website, www.financial-ombudsman.org.uk, as well as a complaint form.

Q: How is the procedure for complaints changing?

A: They are not changing so much for consumers; the emphasis is on tightening up procedures at firms.

Crucially, the two-stage response is going. Firms have been able to make an initial response to a complaint before making a formal one. The initial response was often written in gobbledygook which aggressively rebutted the issue to confuse the complainant and encourage them to drop it.

Now the firm will be given one chance to respond before the complainant has the right to refer the matter to the Ombudsman.Q: What is the best way to complain?

A: If you are unhappy with the service you receive from a financial company, complain immediately to the person you are dealing with, making a note of the time and content of any conversation.

If you are not satisfied, ask to speak to a supervisor; again making a note of the details and time of the conversation.

Next write to the complaints department, the address of which should be on the website. Keep the letter short and clear. Include your major grievance and how attempts to rectify it have failed.

Still not satisfied? Appeal to the Financial Ombudsman.