27th August 2014
The Royal Bank of Scotland and NatWest have been fined £14,474,600 by the financial watchdog the Financial Conduct Authority for advising customers to take out mortgages they might not be able to afford in 2012.
The FCA says that the 81% state-owned banking group failed to ensure that advice given to customers was suitable. Two reviews of sales from 2012 found that in over half the cases the suitability of the advice was not clear from the file or call recording.
The watchdog says that the bank’s affordability assessments failed to consider the full extent of a customer’s budget when making a recommendation, failed to advise customers who were looking to consolidate debt properly and did not properly advise customers about what mortgage term was appropriate for them.
A staggering two out of the 164 sales reviewed were considered to meet the standard required overall in a sales process. In the banks’ own mystery shopping there were examples of advisers giving personal views on the future movement of interest rates. The regulator says this was highly inappropriate and may have resulted in the borrower being sold the wrong type of mortgage.
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). It says this resulted in customers being placed at risk for an even longer period.
Tracey McDermott, director of enforcement and financial crime at the FCA says: “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 says it 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.
The regulator says that at the current time there is no evidence that the failings have caused widespread detriment to customers. However, RBS and NatWest 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.
The firms agreed to settle at an early stage and therefore qualified for a 30% stage one discount. Were it not for this discount, the regulator says the fine would have been £20,678,000.