Thousands of Barclays customers are set for £60 million compensation combined after the bank mis-sold risky investments to those wanting a safe haven for their cash.
The bank was also fined a record £7.7 million by the Financial Services Authority (FSA) for "serious breaches" (see the Investment Buying guide).
These saw salesmen flog insurer Aviva's Global Balanced Income Fund and its Global Cautious Income Fund between July 2006 and November 2008 to retired people or those nearing retirement, many of whom wanted a low risk investment.
Between those dates, Barclays sold to 12,331 people with investments totalling £692 million. Despite the funds' names, they were risky and led to huge losses for investors during the economic turmoil of the past few years.
Accountancy firm Deloitte will independently evaluate which customers are due a refund and how much they will get. Some will receive tens of thousands of pounds.
Barclays has already paid approximately £17 million in compensation and the FSA estimates up to £42 million further could be given back.
Everyone it sold to in those funds who has made a loss will get cash back even if they still hold money in the funds (which means they may yet bounce back), though some have gained.
An FSA investigation found the bank:
- failed to ensure funds were suitable in view of customers' attitude to risk, financial circumstances, investment knowledge and experience;
- failed to ensure salesmen were adequately trained in the risks associated;
- failed to ensure product literature explained the risks;
- failed to monitor sales processes;
- failed to respond promptly when problems were found. While Barclays identified unsuitable sales in June 2008, it did not take appropriate action.
Some 1,730 investors have already complained about the advice they were given to invest in the funds.
Barclays has already identified almost 6,500 cases where consumers could be due a refund, though this will be confirmed by Deloitte.
FSA managing director of enforcement and financial crime Margaret Cole says: "When recommending investment products, firms should take account of a customer's financial circumstances, their attitude to risk and what they hope to achieve by investing.
"On this occasion, Barclays failed to do this and thousands of investors, many of whom were seeking to invest their retirement savings, have suffered. To compound matters, Barclays failed to take effective action when it detected the failings at an early stage.
"Because of this, and given Barclays's position as one of the UK's major retail banks, we view these breaches as particularly serious and fully deserving of what is a very substantial fine."
The fine is the highest imposed by the FSA for failings where retail customers have been hit.
Barclays customer? What can you do?
Barclays stresses it will contact all those due refunds following Deloitte's investigation so no action is required, though the process could take a year.
Compensation should total the amount by which the value of an investment has dropped plus any interest consumers would have received had they placed the cash in a savings account.
Anyone who invested in the Global Balanced Income Fund and Global Cautious Income Fund can still call for help on a special number, 0800 587 7495, or they can get further information via the Barclays website.
Paul McNamara, from Barclays, says: "We know we let our customers down and we are sorry.
"We failed to give adequate information. As a result, a number of customers invested in funds which exposed them to more risk than they were comfortable with and this, coupled with the unprecedented financial crisis, meant some were adversely affected.
"We are determined to put things right for the customers we have let down."
Further reading/Key links
Invest on the cheap: Discount Brokers
When to get help: Financial advice guide
FSA statement: Barclays fine