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Bank ordered to pay out over complaints blunder

The Bank of Scotland has been fined £3.5m and will have to pay out more than £17m in compensation after it mishandled complaints about investment products.

The Financial Services Authority (FSA) said the group wrongly rejected a “significant number” of complaints about sales of a number of investments, many of which were from vulnerable, older customers, who had little or no experience of investing.

An internal investigation carried out by the bank, which is part of taxpayer-backed Lloyds Banking Group, found that as many as 45% of the complaints it handled should have been upheld.

The FSA said between July 30, 2007 and October 31, 2009, BoS received 2,592 complaints about its sales of the collective investment plan, personal investment plan, guaranteed growth bond, ISA investor and guaranteed investment plan.

The complaints were not investigated properly, with staff failing to take account of all relevant information.

It added that the complaints were not assessed |competently and fairly, with poor decisions made on whether the products were suitable for the people they were sold to.

The group was alerted to concerns about its complaints handling at an early stage because the Financial Ombudsman Service was upholding around 46% of the claims BoS had rejected.

But it failed to adequately analyse trends in its own complaints handling and the decisions made by the ombudsman, meaning staff were not aware of the emerging issues.

The bank also failed to carry out effective analysis of the causes of the complaints, which would have enabled it to identify and put right problems in its sales processes, helping it to ensure investment products were not mis-sold to people for whom they were not suitable.

Tracey McDermott, the FSA's acting director of enforcement and financial crime, said: “This fine reflects BoS's serious failure to treat vulnerable customers fairly.

“The firm's failure to ensure it had a robust complaint handling process in place led to a significant number of complaints being rejected when they should have been upheld.”

The group has so far paid out £2.4m to customers whose complaints were upheld following an internal review.