17Feb

Santander sets aside additional sums for PPI and investment compensation

In February 2015, high street bank Santander announced that it had set aside £45 million to pay investment compensation claims. This follows the £12,377,800 fine the bank received from the regulator, the Financial Conduct Authority (FCA), in March 2014 for investment mis-selling. As part of the settlement with the FCA on this occasion, Santander was required to offer compensation to affected customers.

The failings came to light after an FCA mystery shopping exercise. Many customers, sometimes vulnerable and elderly, were recommended risky investments that may not have been suitable for their circumstances, attitude to risk or capacity for loss. In other cases, Santander failed to provide ongoing services that it had agreed to provide, and for which it was receiving payments from the customer. Further deficiencies were uncovered with the standard of training given to advisers. The problems persisted for three years, from the start of 2010 to the end of 2012.

Issues were also identified regarding Santander’s financial promotions, which incorrectly suggested that customers could receive a bespoke investment management service.

The FCA also commented that Santander had misled them as to the findings of an independent review it commissioned. When an external consultant reviewed 50 investment sales from the first half of 2011, 42% of these were found to be potentially unsuitable. Yet Santander still told the FCA appropriate advice was being given to “the great majority of customers”. 

At the time, FCA director of enforcement and financial crime Tracey McDermott said of the bank’s actions:

“Customers trusted Santander to help them manage their money wisely, but it failed to live up to that responsibility.

“If trust in financial services is going to be restored, which it must be, then customers need to be confident that those advising them understand, and are driven by, what they need. Santander let its customers down badly.”

Santander stopped offering investment advice to its customers in March 2013, although it has since launched a new advice service for clients with more than £50,000 to invest.

All authorised firms need to take account of some of the issues uncovered. Clients should not be advised to effect a particular investment without a comprehensive analysis of their income, expenditure, assets, age, level of investment knowledge, risk profile and capacity for loss. Those giving advice need to be competent to do so. Financial promotions must meet the ‘clear, fair and not misleading’ test. Finally, firms must be open and honest in their dealings with the FCA.

In February, Santander also announced that it had set aside an additional £95 million for payment protection insurance (PPI) compensation, saying that “claims are expected to continue for longer than originally anticipated.” Based on previous reports, this would take the bank’s total PPI compensation reserve to £846 million.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.