Poor Complaints Handling Costs £20m on Bank of Scotland

Jack Humphrey, Regulatory journalist
May 25, 2011 /

After failing to uphold a vast portion of complaints it received between July 2007 and October 2009, the Bank of Scotland has been fined £3.5 million today in addition to the £17 million secured by the Financial Services Authority in compensation for customers.

The Final Notice issued by the FSA claims to show that a considerable number of complaints about retail investment products has been “wrongly rejected” by the Bank of Scotland, a key part of Lloyds Banking Group whose shares fell 0.35pc to £50.72 today, one of the biggest fallers in FTSE 100 after ratings agency Moody’s bared plans to downgrade 14 lenders.

The complaints involved sales of the Collective Investment Plan, Personal Investment Plan, Guaranteed Growth Bond, ISA Investor and Guaranteed Investment Plan, filed by customers who were mostly inexperienced in investment products.

Tracey McDermott, the FSA’s acting director of enforcement and financial crime, blamed the firm’s lack of “a robust complaint handling process in place.”

“Had BOS undertaken effective root cause analysis of the complaints it received and had adequate processes in place to feedback lessons learned from past complaints, it could have acted sooner to improve its processes,” McDermott said in a statement.

For example, the Bank of Scotland could have promptly acted on improving the “documentation and evidence around the discussion concerning the risk profiling tool used by the firm to assess customers’ attitude to investment risk.”

After conducting an internal review into a sample of rejected complaints, the Bank of Scotland found that as many as 45 percent should have been upheld rather than rejected.

An investigation by FSA showed that Bank of Scotland failed to take account of all relevant customer information and that its complaint handlers did not carry out proper investigation.

The FSA also pointed to poor decisions made by Bank of Scotland on the suitability of investment products for the customers, describing the assessment of complaints as incompetent and unfair.

In comparison with the trends on the Financial Ombudsman Service’s (FOS) decisions, Bank of Scotland had poor analyses in how it handled the complaints, the FSA claimed. This resulted in the failure of complaint handlers to spot emerging issues.

The Bank of Scotland was alerted to its poor complaints handling after the FOS overturned around 46 percent of firm’s decisions to reject complaints.

The bank has already paid £2.4 million in compensation to customers whose complaint was upheld following its own internal review, with the remaining £15 million being expected once further reviews are complete.

According to McDermott, Bank of Scotland is the second firm to pay such fines after the FSA reviewed the complaints handling in major banks.

Following issuance of the Final Notice, the Bank of Scotland has reviewed the advice-related complaints that it rejected between February 1, 2004 and December 31, 2009.

It has also vowed to review its sales of investment products to around 8,000 customers who were classified as having a cautious attitude to investment risk under the firm’s risk profiling tool in use from July 30, 2007 to March 1, 2010.

“The FSA will continue to undertake further intrusive assessments of the banks that remain a concern and we will not hesitate to take further regulatory action if improvements are not made,” McDermott said.


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