London - Britain's financial regulator has fined Royal Bank of Scotland for selling mortgages without checking if customers could afford them, undermining chief executive Ross McEwan's efforts to repair the bank's image.
The Financial Conduct Authority (FCA) said on Wednesday it had fined RBS, 81 percent-owned by the British government, 14.5 million pounds (R256 million) for failing to ensure advice given to customers between June 2011 and March 2013 was suitable.
The mortgage failure is particularly embarrassing for McEwan because, unlike other scandals to hit the bank, it happened on his watch.
McEwan was appointed to lead RBS's retail division in August 2012 before becoming chief executive in October 2013.
“Taking out a mortgage is one of the biggest moments in our lives, and our customers have every right to expect the very best service when making this decision. It is clear that in the past the bank just didn't get this right. This was unacceptable and should never have happened,” McEwan said on Wednesday.
RBS checks failed to consider a customer's overall budget when deciding if they could afford a mortgage, the bank did not properly advise customers looking to consolidate debt, nor did it recommend the most appropriate mortgage terms, the FCA said.
The regulator said only 2 out of 164 sales it looked at met the required standard.
RBS sold some 30,000 mortgages during the period under review by the FCA.
McEwan has vowed to make RBS, which lost 8.2 million pounds last year, the “best customer service-oriented bank in the UK”, but his efforts are being hampered by various ongoing investigations into past misconduct.
RBS is among several major banks assisting regulators around the world investigating allegations of collusion and price-rigging in the global currency market.
The bank has already been fined 390 million pounds for its role in fixing the benchmark London interbank offered rate (Libor) and has set aside 3.2 billion pounds to compensate customers mis-sold loan insurance.
RBS said it would be writing to customers who were sold mortgages during the period under review to invite them to raise any concerns about the advice they received.
That raises the possibility the bank could face claims for compensation, although the FCA stated it had found no evidence of widespread detriment to customers.
RBS said since the end of November 2012 it had completely overhauled its mortgage sales process, retrained all its mortgage advisers and introduced new sales procedures.
The regulator also found examples of advisers giving personal views on the future movement of interest rates, which it deemed highly inappropriate and said may have resulted in the borrower being sold the wrong type of mortgage.
Consumer group Which? said it was vital customers did not pay the price for any bad advice given.
“Any affected customers should get in contact with them directly. Many people don't shop around when they choose a mortgage, so it's vital that customers don't pay the price for bad advice,” said Which? executive director Richard Lloyd.
Andy Golding, chief executive of new rival bank OneSavings, questioned whether the model used by most high street lenders, where banks only sell their mortgages, is good for the customer.
OneSavings sells mortgages through independent brokers.
“Mortgage advice is something which has to be done carefully with the client in mind with a qualified advisor giving the borrower options,” he told Reuters in an interview.
The failings at RBS came before tighter rules on mortgage lending took effect in April.
They require banks to check more closely that borrowers will be able to afford loan repayments if interest rates go up.
The measures are a key part of the Bank of England's efforts to put the brakes on a surging housing market in London and southeast England, which Governor Mark Carney has identified as the biggest domestic threat to Britain's financial stability. - Reuters