The Financial Services Authority (FSA) has fined HSBC £10.5m, its largest ever retail penalty, after finding that the bank's NHFA subsidiary had mis-sold investment products to elderly customers.
The company is also likely to have to pay up to £29.3m in compensation, the FSA said on Monday.
Between 2005 and 2010, the company sold asset-backed investment products to nearly 2,500 customers, many of whom were elderly and either in long-term care or about to enter it. The typical investment horizon for these products is around five years, which in some cases exceeded the life expectancy of the customers, the FSA said.
"It was clear that HSBC's subsidiary, NHFA, had not considered the needs of its elderly customers and failed in many cases to recommend suitable products for their circumstances," it said.
In imposing the record fine, the FSA took into consideration fact that the customer base was particularly vulnerable, with limited means to recover from any financial loss; the long time period over which the misconduct took place; the number of customers; and the company's leading market position.
"NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products. This type of behaviour undermines confidence in the financial services sector," Tracey McDermott, acting director of enforcement and financial crime, said.
HSBC closed NHFA to new business in July.
Brian Robertson, HSBC Bank's CEO, said in a statement on Monday: "I fully accept that NHFA failed to give suitable financial advice to some of their customers. This should not have happened and I am profoundly sorry that it did.
"We have high values here at HSBC and this runs contrary to everything that we stand for. That is why when we suspected something was not right at NHFA, we took action. We advised the FSA of our findings and closed NHFA to new business on 1st July 2011."