Bank of Scotland plc

On 25 May 2011 the FSA imposed a financial penalty of £3.5 million on Bank of Scotland Plc (the Firm, or BOS) for a breaches of Principle 3 (management and control) and Principle 6 (customers' interests) of the FSA's Principles for Businesses and associated rules which occurred between 30 July 2007 and 31 October 2009 (the Relevant Period) in relation to its complaint handling arrangements. The Firm agreed to settle at an early stage of the FSA's investigation. It therefore qualified for a 30% (stage 1) reduction in penalty, pursuant to the FSA's executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £5million on the Firm. The FSA views the failings as particularly serious because: i)the failings led to a significant number of the Complaints being wrongly decided. The Firm reviewed a sample of 275 of the Complaints about the Investments which it originally rejected (and which were not referred to the FOS). BOS has decided, in 45% of such cases, to overturn the original decision and to now uphold the Complaint. Of the Complaints it will now uphold, 77% were made by inexperienced customers and 55% were from those aged over 60 years. The FSA has conducted it's own review of BOS's complaint decisions and the FSA's findings are consistent with these results; ii)BOS was alerted to concerns about its handling of complaints at an early stage during the Relevant Period as a result of the FOS overturning about 46% of BOS's decisions to reject complaints. Despite this, the Firm failed to take prompt and effective action to address those concerns; and iii)although BOS strengthened its management information and root cause analysis of the Complaints in July 2008, it failed to make sufficient improvements in a timely manner. BOS' failures therefore merit the imposition of a substantial financial penalty. In deciding upon the level of disciplinary sanction, the FSA has taken into account a number of factors, including: i)the actual and potential number of customers placed at risk. During the Relevant Period, 2,592 Complaints were received in relation to the Investments; ii)a large proportion of customers who complained about the advice they were given regarding the Investments were over 60 years of age and/or were inexperienced in investment products; iii)the mis-conduct spanned more than 2 years; iv)to date, £2.4 million in compensation has been paid to customers whose complaint was upheld following a review by BOS of its initial decision to decline the complaint. It is expected that further compensation of around £15 million may be paid; v)BOS has worked in an open and co-operative way with the FSA throughout the investigation. The Firm will review all complaints that it rejected between 1 February 2004 and 31 December 2009 and which were not subsequently referred to the FOS in relation to advice given to customers to invest in any of BOS's retail investment products. BOS has also agreed to proactively undertake a targeted review of its sales of Investments to the 8,000 customers who were classed as having a cautious general approach and attitude to investment risk under its psychometric risk profiling tool in use between 30 July 2007 and 1 March 2010. All customers whose complaint or sale will be reviewed have been identified and BOS will proactively pay compensation where due. BOS has also made changes to its sales process and improved its complaint handling arrangements.