British bank Royal Bank of Scotland (RBS) has been fined £14.47m ($23.97m) by the Financial Conduct Authority (FCA) for failings in mortgage advice to customers.
RBS and its subsidiary NatWest "failed to ensure that advice given to customers was suitable" in over half the cases in two reviews of sales from 2012. Only two of the 164 cases were deemed acceptable.
According to the FCA, RBS and NatWest fell down on three main points:
- failing to consider the full extent of a customer’s budget when making a recommendation
- failing to advise properly on debt consolidation
- failing to advise on what mortgage term was most appropriate
The banks were also in breach of the FCA’s business principles by failing to adequately remedy the issues when they were identified to them by the authority.
"This resulted in customers being placed at risk for an even longer period," the FCA statement said.
The regulator at the time, the Financial Services Authority (FSA), which was later reorganised to the FCA, brought the concerns to the banks’ attention in November 2011 after a review of branch and telephone sales in September and October 2011.
The banks did not begin to tackle the problems until almost a year later, despite assuring the FSA in a letter dated July 2012 that they had already resolved some of them and were "fully addressing" the rest.
"Where we raise concerns with firms we expect them to take effective action to resolve them without delay. This simply failed to happen in this case," said Tracey McDermott, director of enforcement and financial crime at the FCA.
This fine is the latest in what RBS CEO Ross McEwan has privately warned senior RBS staff will be an almost continuous flow of fines for the 80% taxpayer owned bank.
In the firms’ own internal audit of 91 sales in September 2012, similar problems were discovered, including advisors giving personal views on future movement of interest rates but the failings were not addressed.
Due to an early settlement agreement, a 30% discount was applied, saving RBS and NatWest £6.2m.
The FCA’s chief exec, Martin Wheatley, said in July it was disappointing that six years after the crisis, the sector still had major problems in its capacity to "constantly surprise with bad conduct".
RBS has already been fined £390m for its involvement in fixing the London interbank offered rate (Libor). It has set aside £3.2bn for mis-sold loan insurance compensation and faces claims about alleged manipulation of the foreign exchange market and selling US mortgage-backed securities. RBS Group has been fined by the authority in seven previous occasions, including six times in the last four years.
McEwan said: "Today’s notice shows that we still have challenges to face, but we are determined to take the steps needed to earn back our customers’ trust."
McEwan added that mortgage advisors had been retrained and systems had been overhauled since he took over in October 2013. The FCA confirmed the banks agreed to contact around 30,000 customers who received mortgage advice in the relevant period to allow them to raise any concerns they have about advice received.
The banks’ Final Notice said mortgage advice was even more important now after the FCA’s Mortgage Market Review. In 2011, the group was the fifth largest mortgage lender with a market share of around 10.3%. In 2012, it had a 9.7% market share.
An RBS spokesperson said in July that despite strong trading, conduct and litigation issues would likely hamper its performance for the second half of 2014.