Member Article

RBS and NatWest fined £15 million for mortgage advice failures

The Financial Conduct Authority (FCA) has fined The Royal Bank of Scotland and NatWest £14.5 million for ‘serious failings’ in their advised mortgage sales business.

The firms agreed to settle at an early stage and therefore qualified for a 30% stage one discount, otherwise the fine would have been £20.7 million.

The penalty is one of many FCA fines that RBS has been hit with since it was rescued from the brink of collapse 5 years ago.

RBS has paid out hundreds of millions of pounds for its role in the global Libor rate-rigging scandal; been fined for failing to report transactions properly; compensated customers of Coutts, its wealth management operation; and settled with regulators in the UK and the US for failing to comply with anti-money laundering requirements.

The FCA said that in this case the firms failed to ensure that advice given to customers was suitable. Two reviews of sales by the agency from 2012 found that in over half the cases the suitability of the advice was not clear from the file or call recording.

The issues with the sales process included affordability assessments failing to consider the full extent of a customer’s budget when making a recommendation, failing to advise customers who were looking to consolidate debt properly and not advising customers what mortgage term was appropriate for them.

Only 2 of the 164 sales reviewed were considered to meet the standard required overall in a sales process. In the firms’ own mystery shopping there were examples of advisers giving personal views on the future movement of interest rates.

This was ‘highly inappropriate’ according to the FCA and may have resulted in the borrower being sold the wrong type of mortgage for them.

The firms did not adequately address the failings when concerns were raised about the quality of the advice process by the FCA’s predecessor the Financial Services Authority (FSA). This resulted in customers being placed at risk for an even longer period.

The firms have agreed to contact around 30,000 consumers who received mortgage advice in the relevant period, to allow them to raise any concerns they have about the advice they received.

Tracey McDermott, director of enforcement and financial crime at the FCA said: “Taking out a mortgage is one of the most important financial decisions we can make.

“Poor advice could cost someone their home so it’s vital that the advice process is fit for purpose. Both firms failed to ensure that their customers were getting the best advice for them.

“We made our concerns clear to the firms in November 2011 but it was almost a year later before the firms started to take proper steps to put things right.

“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.”

The FSA initially drew the firms’ attention to issues in their mortgage advice process in November 2011 following a review of branch and telephone sales.

The firms did not begin to remedy the issues raised by the review effectively until the end of September 2012 despite the fact that the firms made assurances to the FSA in July 2012 that the necessary changes were well underway to address the FSA’s concerns.

This was posted in Bdaily's Members' News section by Clare Burnett .