Bank that failed to inform clients properly

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When one of the world’s major banks fails to advise customers if they are protected in the event of failure, the financial services industry has a problem.

Towards the end of 2008, clients of Santander began to query to what extent they were covered, if at all, by the Financial Services Compensation Scheme (FSCS). Yet with Spanish apparent arrogance, it was not until January 2010 that Santander clarified the position.

During this time, Santander sold some £2.7bn of ‘structured’ products, including £1.2bn after June 2009 when it had concluded the circumstances in which its two attractively named products – Guaranteed Capital Plus and the Guaranteed Growth Plan – would be covered by the FSCS were limited.

Yet new customers were not informed of the limitation until January 2010.

The Financial Services Authority has fined Santander £1.5m for its failure to inform clients properly. The bank acknowledges it could have changed its product literature and training manuals more quickly to reflect the FSCS position accurately.

“When firms provide customers with literature about products, the information has to be correct and unambiguous,” says Tracey McDermott, acting director of enforcement and financial crime at the FSA.

Quite right. It is there to help people make informed investment decisions. Santander was selling these products in a time of financial uncertainty. The FTSE 100 peaked at 6,730 in June 2007 and had fallen to 3,512 by March 2009.

The FSA says Santander should have moved more quickly to confirm under which circumstances protection would be available.

Its fine is for breaches of skill, care and diligence in business as well as communication with clients.

The regulatory body has not made any findings that these products were sold to customers for whom they were unsuitable and none suffered loss through Santander’s failings.

Yet this is surely not the last time that Ana Patricia Botin, Santander’s chief executive, and her team will be found to plead ‘manana’ and not act in time.

Perhaps they might if penalties were even partly imposed personally. It is certainly a day of shame for a great bank.