FSA Fines Bank of Scotland for Failing to Keep Accurate Mortgage Records

The Financial Services Authority (FSA) fined Bank of Scotland (BOS) £4.2m for failures in keeping accurate mortgage records for 250,000 of its customers over eight years. it resulted in underpaying and overpaying goodwill payments to customers.

The FSA says that a failure in their systems resulted in mortgage information being held on two separate unaligned systems and problems with two further processes where manual updates were not always carried out.

The UK regulator said that BOS relied on incorrect records for "considerable periods of time between 2004 and 2011."

"These mistakes stemmed from the fact that Bank of Scotland had an inadequate mortgage records system meaning they could not identify which of those 250,000 customers were subject to a cap on their standard variable rate," says Tracey McDermott, FSA director of enforcement and financial crime.

"This breach is particularly serious because the inaccuracies built up over a period of seven years. There was no structure in place to identify errors as they occurred and no checking procedures thereafter. In a complicated organisation where several legacy systems exist, firms have to make sure they are synchronised, otherwise it is their customers who suffer," she adds.

The FSA said the issue first came to light when BOS put in place a programme to rectify the fact that some Halifax customers had received potentially confusing information about changes to their mortgage contracts, specifically relating to the standard variable rate.

While monitoring a consumer forum website, the FSA found a number of customers complaining that they had been wrongly excluded from the programme and had not received goodwill payments.

"As well as excluding this group, the problem was compounded when BOS incorrectly contacted 33,700 customers who should never have been included in the programme, and mistakenly made goodwill payments totalling £20.4m to 22,700 of them," says the FSA statement.

The FSA added that BOS breached Principle Three of the FSA's Principles for Business, which requires a firm to organise and control its affairs responsibly and effectively, with adequate risk management systems.

The fine would have been £6mn but BOS agreed to settle with the FSA at an early stage of the investigation, it confirmed.

On 27 September, the FSA revealed that complaints to financial services companies soared by 59 percent in the first half of 2012.

Lloyds TSB was the most complained about ban, with 391,272 complaints being lodged in the first six months of 2012 and Bank of Scotland ranked second with 291,872 complaints, followed by Barclays at 280,358.