The Financial Services Authority (FSA) has fined Barclays £7.7 million for investment advice failings on the sale of two Aviva funds, the Global Balanced Income and Global Cautious Income funds.
The fine is the biggest ever handed down by the FSA to a company for retail failings, and follows a clampdown by the regulator on advisers' use of risk profiling and the tools relied on.
Today, the FSA said that between July 2006 and November 2008 Barclays sold the two funds to more than 12,000 people with investments totalling more than £692 million.
It ruled Barclays made the following failings;
- Failing to ensure the funds were suitable for customers in view of their investment objectives, financial circumstances, investment knowledge and experience;
- Failing to ensure that training given to sales staff adequately explained the risks associated with the funds;
- Failing to ensure product brochures and other documents given to customers clearly explained the risks involved and could not mislead customers; and
- Failing to have adequate procedures for monitoring sales processes and responding promptly when issues were identified.
The FSA added that Barclays had known about potential unsuitable sales as early as June 2008, but had not taken 'appropriate and timely action'.
Of the 12,331 investors affected, some 1,730 had complained about the advice they had received from the bank. In its own past business review, Barclays found that 3,099 or 51% of the sales of the cautious fund, and 3,378 or 74% of the balanced fund had required further consideration.
So far, Barclays has paid out some £17 million in compensation to investors, with the FSA estimating it may have to pay out a further £42 million for mis-selling the two funds.
Margaret Cole, the FSA’s managing director of enforcement and financial crime, said: 'The FSA requires firms to have robust procedures in place to ensure any advice given to customers is suitable. Therefore, when recommending investment products, firms should take account of a customer’s financial circumstances, their attitude to risk and what they hope to achieve by investing.
'On this occasion however, Barclays failed to do this and thousands of investors, many of whom were seeking to invest their retirement savings, have suffered. To compound matters, Barclays failed to take effective action when it detected the failings at an early stage.Because of this, and given Barclays’ position as one of the UK’s major retail banks, we view these breaches as particularly serious and fully deserving of what is a very substantial fine.'
Over the period examined by the FSA, performance of the two Aviva vehicles has been less than sparkling. While the balanced sector fell 16.8%, the Aviva Global Balanced Income fund lost 31.8%. The second vehicle, Aviva's Global Cautious Income fund, lost 19.2% between July 2006 and November 2008. Over the same period the ABI cautious sector fell by a much lesser 15.8%.