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February 13, 2013 3:30 pm
Santander UK is facing a regulatory investigation after a “mystery shopping” exercise by the Financial Services Authority (FSA) uncovered failings in the investment advice given by high street banks.
The FSA published the findings on Wednesday of 231 visits to six banks and building societies, in which assessors posed as potential customers to gauge the quality of advice given.
It found that a quarter of customers were given poor investment advice – leading Santander’s UK operation to be referred to the regulator’s enforcement division.
News of the FSA findings came on the same day that Santander announced it was carrying out a strategic review of its UK investment advice arm, which could result in it being closing down.
In December the bank suspended its investment advice service, because of concerns that staff would not be able to meet new rules being introduced by the FSA at the end of 2012, as part of its Retail Distribution Review (RDR). It removed more than 800 advisers from its branches, and placed them on intensive training courses.
Santander declined to comment on the FSA review. The bank said: “We are considering the findings in the context of the significant actions we took in 2012 to prepare for the post-RDR world.”
Mystery shopping exercises are set to become a more widely-used supervisory tool when the FSA is replaced by the Financial Conduct Authority (FCA) in April.
In the past, the FSA has been criticised for failing to make more use of mystery shoppers to test bank services. It last published the results of such an exercise in September 2008, when it revealed failings in the way payment protection insurance (PPI) was sold.
FT Money Show podcast: Listen to Tanya Powley discuss the results of the FSA mystery shopping exercise into bank advice
In its latest review of investment advice, it found that bank advisers gave unsuitable advice to customers in 11 per cent of cases. It also found that in 15 per cent of cases, advisers did not gather enough information to make sure their advice was suitable.
The FSA said it found problems at all of the high street lenders it reviewed, but it was particularly concerned with the “high level of poor advice” it found in some.
Adam Phillips, chairman of the FSA Consumer Panel, said: “We would have expected much better results given the FSA’s recent focus on investment advice. These findings are very disappointing. They do, however, highlight the importance of mystery shopping. Consumers should be entitled to expect more from financial institutions.”
Clive Adamson, director of supervision at the FSA, said the review showed customers are not consistently getting the quality of advice on their investments from their bank. But he added: “We are encouraged by the action that the firms involved have taken to rectify the situation for their customers.”
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