Universal banking [updated] | FT Alphaville

Universal banking [updated]

The Financial Services Authority (FSA) has fined Barclays Bank plc (Barclays) £7.7 million for failures in relation to the sale of two funds. Barclays will contact customers and pay redress where appropriate…

Between July 2006 and November 2008 Barclays sold Aviva’s Global Balanced Income Fund (the Balanced Fund) and Global Cautious Income Fund (the Cautious Fund) to 12,331 people with investments totalling £692 million.

During the investigation Barclays continued to carry out a past business review to evaluate the suitability of the sales of both funds: 3,099 sales of the Cautious Fund (51% of all sold) and 3,378 of the Balanced Fund (74% of all sold) have been identified as requiring further consideration.

As a result Barclays has already paid approximately £17 million in compensation and the FSA estimates up to £42 million further could be paid to customers who received unsuitable advice…

Barclays stopped selling the products two years ago. The unsuitable advice boils down to the bank failing to disclose to investors that it’d swapped around its (Toytown, frankly) classifications of fund risks in 2007 — ‘balanced’ funds were re-classed ‘adventurous’ and so on.*

*Update — Actually, while this classification error did affect funds (Barclays resolved it later on) the bank was specifically fined in this instance for providing unsuitable advice and product documentation involving downside risks within the fund portfolios. Which (as you can see from the breakdowns below) were not insubstantial.

To remind — the ‘Balanced’ Fund is almost two-thirds held in UK or international equities: the ‘Cautious’ one’s a mere 38 per cent biased.

And to further remind, this was Barclays chief executive John Varley writing in the FT in September 2010:

But regaining trust will require more. It requires reconnecting with stakeholders on a different level. In many ways, banks have a simple role in society. We help customers take appropriate risks. Our business objective is to make it easier for people to do some of the things that matter to them and which, collectively, can have a significant impact on economic growth. Customers that I speak with want to move on from the recession and want to know what banks are going to do to help them. It is a fair question…

It is.

Related link:
FT Alpahville wishes to isue a corroction – FT Alphaville (2008)