Bank of Scotland to pay out £17m after investment complaints

THE Bank of Scotland was fined £3.5 million today and will have to pay out more than £17 million in compensation after it mishandled complaints about investment products.

The Financial Services Authority said the group wrongly rejected a "significant number" of complaints it received about sales of a number of investments, many of which were from vulnerable, older customers, who had little or no experience of investing.

An internal investigation carried out by the bank, which is part of taxpayer-backed Lloyds Banking Group, found that as many as 45 per cent of the complaints it handled should have been upheld rather than rejected.

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The FSA said between July 30, 2007 and October 31, 2009, BoS received 2,592 complaints about its sales of the collective investment plan, personal investment plan, guaranteed growth bond, ISA investor and guaranteed investment plan.

The complaints were not investigated properly, with staff failing to take account of all relevant customer information.

It added that the complaints were not assessed competently and fairly, with poor decisions made on whether the products were suitable for the people they were sold to.

The group was alerted to concerns about its complaints handling at an early stage because the Financial Ombudsman Service was upholding around 46 per cent of the claims BoS had rejected.

But it failed to adequately analyse trends in its own complaints handling and the decisions made by the ombudsman, meaning staff were not aware of the emerging issues.

The bank also failed to carry out effective analysis of the causes of the complaints, which would have enabled it to identity and put right problems in its sales processes, helping it to ensure investment products were not mis-sold to people for whom they were not suitable.

Tracey McDermott, the FSA's acting director of enforcement and financial crime, said: "This fine reflects BoS's serious failure to treat vulnerable customers fairly.

"The firm's failure to ensure it had a robust complaint handling process in place led to a significant number of complaints being rejected when they should have been upheld."

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The group has so far paid out 2.4 million in compensation to BoS and Halifax customers whose complaints were upheld following an internal review, and it is expected to pay out a further 15 million once other reviews are completed.

It is carrying out a review of 8,614 complaints relating to investment advice that were received between February 1, 2004 and the end of 2009 that were rejected by the bank or not referred to the Financial Ombudsman Service, which it hopes to have completed by the end of July.

BoS is also carrying out a targeted review of sales of some investment products to 7,903 customers between July 30, 2007 and March 1, 2010, where people were initially assessed as having a cautious approach to investments.

Ray Milne, risk director at Bank of Scotland, said: "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.

"We are committed to putting this right and have co-operated fully with the FSA to determine the proper course of action for these customers.

"I would like to assure customers that the issues relate to processes that are no longer used today. We are in the process of contacting affected customers and will pay compensation where it is due."

It is the second time the FSA has fined a firm following its review of complaints handling, after Royal Bank of Scotland and NatWest were fined 2.8 million in January this year.