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Exclusive: Santander UK probed over flawed advice-sources

A man uses an ATM machine as another talks on the phone outside a Santander bank branch in Madrid January 31, 2013. REUTERS/Susana Vera
A man uses an ATM machine as another talks on the phone outside a Santander bank branch in Madrid January 31, 2013. REUTERS/Susana Vera

By Steve Slater and Kirstin Ridley

LONDON (Reuters) - Santander's British arm is under investigation for possible investment advice failures and could face a fine or license changes that prevent it from offering such services in future, four industry sources said.

Britain's Financial Services Authority (FSA) said on Wednesday it had referred a major high street bank to its enforcement division, the latest clamp-down on an industry tarnished by mis-selling and interest rate-rigging scandals.

UK banks are already facing bills totaling billions of pounds from a series of misdemeanors, including mis-selling payment protection insurance (PPI), misleading customers about interest rate hedging products and a global interest rate rigging scam.

The FSA declined to name the lender and Santander UK declined to comment on whether it was being investigated.

The financial regulator said the probe, which followed spot checks during a review of the quality of advice available at six major banks and building societies, would only have been ordered if the company in question had a history of poor advice.

Shortly after this investigation was announced, Santander UK said it was reviewing the future of its retail investment advice arm, putting 800 jobs at risk.

It told staff at a scheduled meeting in Birmingham, in the English midlands, it was assessing its bancassurance business "given we can no longer be certain ... whether we will definitely continue providing face-to-face advice."

JOBS CULL?

Santander UK had suspended investment advice in December and pulled its advisers "off the road" for more training because of new rules in Britain aimed at making financial advice more transparent for customers.

It said on Wednesday it would not take on new investment advice until it finds the right model.

The bank said no jobs were currently at risk, but said it had consulted unions and was working with other business areas to ensure that many of those who might be impacted are able to secure roles elsewhere in the group.

Four of its big rivals have already cut 3,500 advisers in the past two years after reviewing their investment advice processes ahead of the introduction of the new rules this year.

The FSA's new retail distribution review (RDR), which kicked in on January 1, aims to ensure advisers are better trained and that fees for financial advice are more transparent.

But banks argue the review contributed to their decisions to pull back from investment advice while they assessed the additional costs. Many now only offer advice to customers with more than 50,000 pounds ($78,300) to invest.

Barclays cut just over 1,000 jobs, HSBC 800 positions, Lloyds 1,000 advisory positions and Royal Bank of Scotland 618. Some banks said jobs were redeployed.

The FSA has conducted a so-called "mystery shopping review" to do spot checks on the industry. The regulator said agents had visited six major lenders 231 times between March and September 2012 to gather evidence about the quality of advice for customers keen to invest a lump sum.

Advisers at the lenders visited gave unsuitable advice 11 percent of the time and did not gather enough information to ensure suitable advice in 15 percent of cases, the FSA said.

"This review shows that customers are not consistently getting the quality of advice on their investments that they should expect when visiting an adviser in a bank or building society," said Clive Adamson, the FSA's director of supervision.

(Additional reporting by Matt Scuffham. Editing by Sinead Cruise and Jane Merriman)

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