FSA Review Finds a Quarter of Bank Customers Got Bad Advice

Banks gave inadequate investment advice to a quarter of customers in “mystery shopper” tests, the U.K. Financial Services Authority said.

The FSA referred Banco Santander SA to its enforcement division for investigation into the quality of advice it gave in the mystery-shopper tests.

Santander will “review how it can offer advice to its customers in the future for their benefit and provide access to appropriate investment products,” according to an e-mailed statement from the Madrid-based bank.

U.K. banks including Barclays Plc, Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc have had to set aside more than 10 billion pounds ($15.6 billion) to pay back customers wrongly sold insurance on personal loans. A probe by the FSA into improperly sold interest rate derivatives may lead to another 5 billion pounds being paid in compensation to small businesses.

The regulator sent people, who didn’t identify themselves as being there for the FSA, out to invest at six U.K. banks. Employees gave them unsuitable advice 11 percent of the time, the agency said in a statement. Advisers didn’t gather enough information in 15 percent of visits.

Reuters reported that Santander was the bank referred for the probe. Sarah Bailey, a spokeswoman for the FSA, declined to comment.

The regulator sent people, who didn’t identify themselves as being there for the FSA, out to invest at six U.K. banks. Employees gave them unsuitable advice 11 percent of the time, the agency said in a statement. Advisers didn’t gather enough information in 15 percent of visits.

“This review shows that customers are not consistently getting the quality of advice on their investments that they should expect when visiting an adviser in a bank or building society,” said FSA director of supervision Clive Adamson.

Inappropriate Risk

The FSA considered the advice given the mystery shoppers to be poor due primarily to inappropriate levels of risk, failure to consider customers’ circumstances and the length of time they wanted to hold an investment, according to the statement. This was the first time since 2008 that the regulator has done a mystery shopper test.

The British Bankers’ Association said while the majority of customers received good advice, more could be done.

“This exercise took place last year before the industry implemented new FSA rules which mean advisers are now better trained and are not paid commission for making sales,” the BBA said in a statement.

To contact the reporter on this story: Kit Chellel in London at cchellel@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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