The regulator found the bank failed to ensure its customers received suitable, fair and not misleading advice in the years leading up to early 2013, when the bank ceased to offer such advice.
In relation to its premium investments the bank failed to carry out regular reviews to ensure the investments remained suitable for the clients and that the promised service was actually provided.
The breaches were deemed even more serious by the FCA as the bank had already undertaken a string of investigations which had highlighted failings, including internal and external audits, mystery shopping, a thematic review, and a ‘dear CEO’ letter, which should have brought about changes.
It was fined £1.5m by the regulator in February 2012 for giving customers unclear information on structured products.
Santander’s historic bancassurance business provided retail investment advice to approximately 295,000 customers on 349,000 investment products, with investments totalling in the region of £7bn between 2010 and 2012.
The bank’s retail investment customers were aged 60 years on average and the average investment per customer was in the region of £24,000.
In particular Santander failed in these points:
Investment sales process
1. Failings in disclosure and communications with customers
Santander’s mystery shops found more than a tenth of advisers failed to explain to their clients their rights to Financial Services Compensation Scheme (FSCS) compensation, while some falsely claimed all products were covered by the scheme.
Two thirds of advisers failed to explain key documentation including the cost of sale, terms and conditions and key features documents.
Almost half of advisers were found to give poor explanations of Santander products and market risks, while almost all (94%) failed to provide adequate disclosure and comprehensive documentation supporting the products sold.
The regulator’s mystery shops found the same problems, but also detected failings in cost disclosure.
It found advisers were making statements such as: an investment ‘will likely double’; ‘FTSE was 8000-9000 in 2008′; ‘so in ten years it will beat cash by 87%’ (even though the customer’s investment term was only for five years); and ‘commission is irrelevant’ – telling customers they would not be paying commission when, the regulator found, commission was 7.75% for one of the products.
2. Fact-finding deficiencies
The FCA found Santander’s advisers were provided with tools that failed to gather information on the customer’s knowledge and experience of investments; the customer’s current and future objectives; and expected future changes in circumstances.
Training did not help prompt advisers to ask these questions, for instance advisers were told to record ‘soft facts’, but what was meant by that term was not defined, the FCA found.
Advisers also failed to determine whether clients were deemed ‘vulnerable’. Santander mystery shops found half of advisers demonstrated general weaknesses in gathering or taking customer information into account.
3. Failings in relation to investment returns forecasting
Santander advisers had to use a forecaster when selling investments. But the FCA found advisers were misusing the tool, in particular the forecaster would not confirm the inflation and investment returns given to the clients; and used a cash rate for comparison for customers who were willing to leave their money on deposit for a fixed term, making investments more attractive.
Mystery shops also found instances where advisers emphasised the the ‘highest’ return suggested by the forecaster without providing sufficient information on the potential downside risk; and extended the customer’s required investment term, making potential returns look more attractive.
4. Failings in risk profiling
Santander used risk profiling questionnaires as part of its investment sales process but the FCA found “significant deficiencies” with their design.
For instance,they contained questions that were open to interpretation and too complex for Santander’s target market to understand and answer correctly, the FCA found.
The risk categories generated by questionnaire also did not
clearly quantify the level of risk that investors would take, meaning some would not understand the level of risk they would be exposed to. They also failed to address the ‘capacity for loss’ issue.
In one case, the FCA found, the risk profiling questionnaire assessed the customer as a ‘high risk’ investor when the customer had said that they ‘did not want anything risky’.
In another case, the FCA said, the adviser placed too high a reliance on the automated output which assessed the customer as ‘high risk’. The adviser failed to properly challenge the ‘high risk’ outcome after the customer stated that they were only comfortable with a ‘medium’ level of risk.
5. Deficiencies in Santander’s suitability reports
Advisers were provided with system-based templates to allow them to write a detailed suitability report.
But the templates did not prompt them to address a customer’s changes in circumstances; relevant existing or previous investments; source of funds; and capacity for loss. They also did not describe a customer’s attitude to risk.
The FCA detected a number of misleading reports, including one which mis-represented the discussion between adviser and client by stating, ‘you told me that you did not miss the money and you wanted something long term’ when in fact, the customer had repeated on a number of occasions that the term for their investment was 3 years.
6. Unsuitable or unclear recommendations for customers
Internal and external reviews concluded that between 35 and 42% of recommendations were unsuitable or the suitability of the recommendations was unclear.
The FCA found: “Advisers did not adequately consider the repayment of debt before recommending an investment. For example, one adviser recommended that a customer invest £40,000 in a high risk investment without gathering full information on the customer’s assets and outgoings; without recommending that the customer consider repayment of credit card debt before investing; and without confirming the customer’s understanding of the risks associated with the product despite highlighting the benefits of the product to the customer.”
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7. Inadequate training of advisers
Santander provided training to new advisers and all existing advisers in relation to new products, initiatives and changes in process.
But the bank’s HR department had set the pre-entry test pass rate at 10% below the normal 80% pass mark of other courses.
“If the pass rate had been 80%, 41% of advisers who completed the training during the third quarter of 2011 would have failed the assessment and may not have been able to attend the training course at that time,” the FCA said.
Santander’s compliance concluded that the further training was rushed and did not provide advisers with sufficient time to ensure that they fully embedded the investment sales process.
Limited time was spent on key parts of the investment sales process, with insufficient time spent on the suitable advice manual, principle guidance for advisers, the FCA said.
An advisers told the FCA: “To not have access to the actual system which we would be using during the client meetings was frankly ridiculous so [the] training world and real world were on opposite sides of the spectrum.”
8. Inadequate compliance monitoring of investment sales
Santander’s ‘advice quality’ monitoring failed in its approach to review investment sales; sampling methodology to select sales for review; management information produced; and tracking of remedial action.
The external consultants brought in in late 2011 disagreed with advice quality’s findings in 37% of cases, the FCA said.
It found the scripts used by advice quality failed to focus on whether advice was actually suitable for customers.
The monitoring approach also did not ensure it covered all products across the adviser and customer population and it failed to define terms such as ‘high risk’ product or customer.
“The weaknesses in Santander’s compliance monitoring of investments sales gave rise to an unacceptable risk that poor sales behaviours, practices and any resulting customer detriment would not be identified and remediated in a timely manner,” the FCA said.
Premium Investments
9. Regular reviews
Santander promoted and offered regular reviews as one of the benefits of its premium investments. Despite this, the FCA found, Santander failed to ensure that customers received a regular review of their investments to check that the investments continued to meet their needs.
10. Financial promotions of premium investments
From April 2004 Santander issued a range of promotional material and communications in relation to its premium investments that were found to have been unfair and misleading.
The FCA found that some of the services promoted or charged for, for example regular reviews, and asset allocation and active management of investment positions, may not have been received.
