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9th December 2011

HSBC major regulatory failure at NHFA

HSBC was fined £10.5m (€12.2m $16.4m ¥1,273m Y104.0m) by the Financial Services Authority earlier this week for the mis-selling of investment bonds to the elderly. The mis-selling occurred in subsidiary NHFA which had its own separate sales force.


The NHFA gave advice to the elderly much of it focused on paying for long term care. The NHFA salesmen often recommended investment bonds which had little or no change of providing a benefit within the likely life expectancy of the client. Not only are there tax disadvantages from withdrawing more than a small proportion of the original investment in any one year but NHFA actually sold bonds with lock in periods. Clients needing money for their care needs had to break the lock-in period incurring considerable penalty.

On the one hand the fine represents around 2 hours income for the banking group and is therefore a fine of insignificant financial consequence. The bank is paying out around £300m in compensation, still less than two days gross income. The fine is damaging to its consumer reputation particularly because of the age of those affected. The damage to its control and risk management reputation is perhaps of most significance. The investigation found that up to 87% of all sales by NHFA 'may have been unsuitable' and yet the matter remained undetected for five years and even when internally investigated little priority appears to have been given. It would appear difficult to believe that NHFA officials could have remained unaware of the problems.

The timeline was:
- NHFA bought in 2005.
- In 2009 a reorganisation designated NHFA as part of the retail bank
- Later in 2009 a review was started and some concerns were noted.
- Investigation continues slowly and it is not till Summer 2010 HSBC informs the FSA.
- Not until July 2011 HSBC suspends NHFA new business