FINAL NOTICE

To:



Bank of Scotland Plc

Of:



The Mound




Edinburgh
Midlothian EH1 1YZ

FSA Reference Number:
FRN 169628

Date:


23 May 2011

TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary
Wharf, London E14 5HS (the FSA) gives you final notice about a requirement to pay a
financial penalty.

1.
THE ACTION

1.1.
The FSA gave Bank of Scotland (the Firm or BOS) a Decision Notice on 23 May
2011 which notified the Firm that pursuant to section 206 of the Financial Services
and Markets Act 2000 (the Act), the FSA had decided to impose a financial penalty of
£3.5 million on the Firm is in respect of breaches of Principles 3 (management and
control) and Principle 6 (customers’ interests) of the FSA’s Principles for Businesses
(the Principles) and associated rules between 30 July 2007 and 31 October 2009 (the
Relevant Period) in relation to the Firm’s complaint handling arrangements.

1.2.
The Firm confirmed on 23 May 2011 that it will not be referring the matter to the
Upper Tribunal (Tax and Chancery Chamber).

1.3.
BOS has agreed to settle this matter at an early stage of the FSA’s investigation. It
therefore qualifies for a 30% (Stage 1) reduction in penalty pursuant to the FSA’s
executive settlement procedures. Were it not for this discount, the FSA would have
sought to impose a financial penalty of £5 million on BOS.

1.4.
BOS has agreed to carry out a review of its handling of complaints related to retail
investments as detailed in this Notice. To date, the Firm has paid redress in the
amount of £2.4 million.

1.5.
Accordingly, for the reasons set out below, the FSA imposes a financial penalty on
the Firm in the amount of £3.5 million.

2.
REASONS FOR THE ACTION

2.1.
Between 30 July 2007 and 31 October 2009, BOS received 2,592 advice related
complaints (the Complaints) about its sales of Collective Investment Plan, Personal
Investment Plan, the Guaranteed Growth Bond, ISA Investor and Guaranteed
Investment Plan (together, the Investments) in the Relevant Period. BOS’s complaint
handling arrangements for the Investments breached the FSA’s Principles and rules.

2.2.
In relation to the FSA’s Principles, BOS failed to:

(1)
take reasonable care to organise and control its affairs responsibly and
effectively, with adequate risk management systems (Principle 3); and

(2)
pay due regard to the interests of its customers and treat them fairly (Principle
6).

2.3.
BOS also breached a number of rules contained in those parts of the FSA’s Handbook
(the Handbook) which are entitled Dispute Resolution: Complaints (DISP) and Senior
Management Arrangements, Systems and Controls (SYSC). Details of the rules and
related guidance and the dates they were in force are set out in the appendix to this
Notice.

2.4.
In particular, BOS failed to:

(1)
ensure its complaint handlers investigated the Complaints properly by taking
account of all relevant information. For example, the guidance provided to
complaint handlers did not require complaint handlers to contact customers
when this was necessary to resolve the Complaints, to obtain all relevant
information from sales advisers and to consider information which was readily
available on BOS’s systems but not documented in BOS’s sales files;

(2)
ensure the Complaints were assessed competently and fairly. Complaint
handlers did not always adopt a balanced and impartial approach when
assessing the available evidence. This resulted in some poor decisions on
whether the Investments were suitable for customers who complained. As a
result, BOS rejected some of the Complaints when it should have upheld them
and did not appropriately compensate affected customers;

(3)
have an adequate process in place to feed back to its complaint handlers
analysis of trends in complaints decisions. Lessons learned from past
complaints, including those determined by the Financial Ombudsman Service
(FOS), were not reflected promptly in the Firm’s complaint handling guidance.
As a result, complaint handlers were not always aware of and did not always
have appropriate regard to emerging issues when deciding the Complaints; and

(4)
did not carry out timely and effective root cause analysis of the Complaints it
received to enable it to identify and remedy issues in its processes which could
have been highlighted by those complaints. If BOS had carried out
appropriate analysis in a timely manner it would have identified, sooner than it
did, opportunities to improve its processes. For example as explained in
paragraphs 4.23 to 4.33, BOS could have improved earlier the documentation
and evidence around the discussion concerning its psychometric risk profiling
tool which was used by the Firm to assess a customers’ general attitude to
investment risk in the period 30 July 2007 to 1 March 2010.

2.5.
As a consequence of the above failings, customers who complained about the
Investments were not treated fairly, in that a significant number of the Complaints
were rejected by BOS when they should have been upheld.

2.6.
BOS’s breaches are viewed as particularly serious. The reasons for this are:

(1)
the failings led to a significant number of the Complaints being wrongly
decided. The Firm reviewed a sample of 275 of the Complaints about the
Investments which it originally rejected (and which were not referred to the
FOS). BOS has decided, in 45% of such cases, to overturn the original
decision and to now uphold the Complaint. Of the Complaints it will now
uphold, 77% were made by inexperienced customers and 55% were from those
aged over 60 years. The FSA has conducted it’s own review of BOS’s
complaint decisions and the FSA’s findings are consistent with these results;

(2)
BOS was alerted to concerns about its handling of complaints at an early stage
during the Relevant Period as a result of the FOS overturning about 46% of
BOS’s decisions to reject complaints. Despite this, the Firm failed to take
prompt and effective action to address those concerns; and

(3)
although BOS strengthened its management information and root cause
analysis of the Complaints in July 2008, it failed to make sufficient
improvements in a timely manner.

2.7.
BOS’ failures therefore merit the imposition of a substantial financial penalty. In
deciding upon the level of disciplinary sanction, the FSA has taken into account a
number of factors, including:

(1)
the actual and potential number of customers placed at risk. During the
Relevant Period, 2,592 Complaints were received in relation to the
Investments;

(2)
a large proportion of customers who complained about the advice they were
given regarding the Investments were over 60 years of age and/or were
inexperienced in investment products;

(3)
the mis-conduct spanned more than 2 years;

(4)
to date, £2.4 million in compensation has been paid to customers whose
complaint was upheld following a review by BOS of its initial decision to
decline the complaint. It is expected that further compensation of around £15
million may be paid;

(5)
BOS has worked in an open and co-operative way with the FSA throughout
the investigation. The Firm will review all complaints that it rejected between
1 February 2004 and 31 December 2009 and which were not subsequently
referred to the FOS in relation to advice given to customers to invest in any of
BOS’s retail investment products. BOS has also agreed to proactively
undertake a targeted review of its sales of Investments to the 8,000 customers
who were classed as having a cautious general approach and attitude to
investment risk under its psychometric risk profiling tool in use between 30
July 2007 and 1 March 2010. All customers whose complaint or sale will be
reviewed have been identified and BOS will proactively pay compensation
where due. BOS has also made changes to its sales process and improved its
complaint handling arrangements.

3.
RELEVANT STATUTORY PROVISIONS

3.1.
Under section 2(2) of the Act, the FSA’s statutory objectives include protecting
consumers.

3.2.
Section 206 of the Act provides:

“If the Authority considers that an authorised person has contravened a requirement
imposed on him by or under this Act, … it may impose on him a penalty, in respect of
the contravention, of such an amount as it considers appropriate.”

3.3.
BOS is an authorised person for the purposes of section 206 of the Act. The
requirements imposed on authorised persons include those set out in the FSA’s
Principles and rules made under section 138 of the Act.

FSA’s Principles and rules

3.4.
The FSA’s Principles are a general statement of the fundamental obligations of firms
under the regulatory system. They derive their authority from the FSA’s rule-making
powers as set out in the Act and reflect the FSA’s regulatory objectives.

3.5.
The FSA’s rule-making powers are set out in Chapter I of Part X of the Act (Rules
and Guidance). In accordance with its powers and provisions under this part of the
Act, the FSA has made rules, in particular, in respect of Senior Management
Arrangements, Systems and Controls and Dispute Resolution: Complaints.

3.6.
The relevant Principles, rules and related guidance are set out in the Appendix to this
Notice.

4.
FACTS AND MATTERS RELIED ON

4.1.
BOS is a retail bank with an extensive branch network and sales force. It was
authorised by the FSA on 1 December 2001. The Firm has permission from the FSA
to carry on regulated activities in relation to, among other things, advising on
investments and arranging deals in investments.

4.2.
The failings identified in this Notice are confined solely to BOS, operating under its
Bank of Scotland and Halifax brands in the UK.

4.3.
Between 30 July 2007 and 31 October 2009, BOS received 2,592 advice related
Complaints about its sales of the Investments in the Relevant Period. The total
number of the Investments bought in the Relevant Period is 573,787.

FSA’s thematic review

4.4.
In mid 2009, as part of the FSA’s more intensive and intrusive approach to the
supervision of conduct risks, the FSA undertook a review of complaint handling
within BOS. This work was conducted as part of a wider review of complaint
handling by major banks, the findings of which are set out in the FSA’s report entitled
“Review of complaint handling in banking groups” dated April 2010.

4.5.
As part of this work, the FSA reviewed 65 advice-related complaints. In 30 (46%) of
the 65 complaints reviewed, the FSA identified concerns around whether BOS had
investigated the complaint as required by DISP. In 32 (49%) complaints, the FSA did
not agree with BOS’s decision to reject the complaint. The review also raised
concerns around the adequacy of BOS’s root cause analysis of complaints, including
concerns related to whether BOS was adequately analysing its complaints to
understand why customers were complaining and to consider whether it could make
any changes to its processes.

Firm’s review of past complaints

4.6.
During the course of the FSA’s investigation, BOS conducted its own review of a
sample of 275 of the Complaints about the Investments which it originally rejected
(and which were not subsequently referred to the FOS). Of those reviewed, BOS
found that:

(1)
45% should have been upheld, rather than declined. In a further 8% of cases
the decision to decline the complaint was ‘borderline’;

(2)
in 77% of complaints which should have been upheld (amounting to 35% of
the overall sample population), a reason for overturning the original decision
was a failure by the complaint handler to properly assess whether BOS’s
original assessment of the customer’s attitude to investment risk was
appropriate, taking into account all the available evidence.

Sales and complaint handling arrangements

4.7.
The Investments were recommended to customers by BOS’s branch-based investment
sales staff.

4.8.
The information taken account of by BOS’s sales staff when making a
recommendation to a customer in the Relevant Period included the results from a
psychometric risk profiling questionnaire completed by the customer (which provided
an insight into the customers general approach and attitude to taking investment risk),
together with information obtained from the customer during face to face meetings.
The information gathered assisted sales staff to assess the customer’s attitude to
taking investment risk for the customer’s specific aims and objectives and to decide
the appropriate product to recommend, if any.

4.9.
Customers who subsequently complained about the advice they were given in relation
to the Investments were referred to designated teams in BOS’s central complaint
handling unit. These teams were responsible for handling Regulated Investment
advice complaints for all business areas within BOS’s Retail Division. The central
complaint handling unit also produced high level management information about
complaints for BOS’s business areas which sold the Investments. The unit was also
responsible for writing policy and guidance for complaint handlers.

4.10. In BOS’s case, the proportion of the Complaints received during the Relevant Period
was less than 0.5% of all sales of the Investments. Nonetheless, the FSA requires
firms to give appropriate guidance to their complaint handlers to enable them to
identify promptly potential concerns in relation to investment-related complaints and
to uphold these complaints in the appropriate circumstances. BOS failed to ensure it
had robust complaint handling arrangements in place to ensure this. As a result, the
Firm’s complaint handlers rejected many of the Complaints when they should have
upheld them and customers were not treated fairly. BOS has made changes to its
sales processes and improved its complaint handling arrangements.

Failure to investigate complaints properly

4.11. During the Relevant Period, BOS did not give its complaint handlers sufficient
guidance on how to investigate complaints properly, as required by the FSA’s rules,
by gathering all relevant information.

4.12. In particular, BOS’s complaint handling processes were flawed because:

(1)
it was not mandatory for complaint handlers to contact the customer to obtain
information which they needed to make an appropriate decision on a
complaint. As a result, complaint handlers issued some final decisions which
were based on incomplete information. If the customer did not use their own
initiative to provide the missing information to BOS, they could have missed
out on compensation which they were entitled to. Some customers may not
have known that the information was relevant to the complaint or that BOS did
not have it;

(2)
complaint handlers were not given appropriate guidance on how to obtain
information from BOS’s sales staff which was relevant to a complaint.

Complaint handlers sent a standard form to BOS’s sales staff asking them to
respond generally to the complaint. When sales staff failed to respond
specifically to each of the substantive issues raised by the complainant or gave
an inadequate response, complaint handlers were not required to investigate
further by asking for additional information; and

(3)
prior to August 2009, the guidance to complaint handlers did not require them
to consider information which was readily available elsewhere on BOS’s
systems but which was not documented in customer sales files. For example,
complaint handlers may have been able to ascertain from such information
how customers had previously invested their money. This information may
have impacted on how complaint handlers assessed whether it was right for
BOS sales staff to make recommendations to customers to invest in particular
Investments or to switch out of existing products.

4.13. As a result of the above failings, complaint handlers did not in a significant proportion
of cases gather information which they should have obtained as part of their routine
investigation of complaints.

Failure to assess complaints fairly

Inadequate regard to customers’ circumstances as a whole

4.14. The failures to investigate competently contributed to complaint handlers determining
Complaints without an adequate understanding of customers’ circumstances as a
whole at the time they were advised in relation to the Investments. This led to
Complaints which should have been upheld being wrongly rejected and, in these
cases, customers were deprived of compensation which they were entitled to.

4.15. Although BOS revised its complaint handling policy in July 2008 and sought to
encourage its complaint handlers to consider all relevant information when deciding
complaints, the revised policy was ineffective and complaint handlers continued to
make poor decisions. As a result, the Firm’s uphold rates continued at a lower level
than was justified. In August 2009 more detailed guidance was given to complaint
handlers and in November 2009 further improvements were made.

Undue regard for compliance with BOS’s sales process

4.16. Prior to April 2008, there was an over-emphasis in BOS’s complaints handling policy
on whether sales staff had complied with the Firm’s own procedures when assessing
whether an individual complaint should be upheld. Complaint handlers
inappropriately relied on compliance with the Firm’s sales processes and provision of
policy documents as sufficient evidence that sales staff had properly explained the key
features and risks associated with the Investments to the customer. However,
complaint handlers should have been instructed to objectively assess the merits of
each complaint based on a consideration of the issues raised by the customer.

Poor decisions relating to the assessment of the suitability of advice

4.17. BOS made poor decisions in assessing the suitability of the Investments for some of
the customers who complained. Complaint handlers did not assess accurately whether

the Investments exposed customers to a level of risk which was more than they were
willing to accept and able to take. Nor did they uphold complaints from customers
who were advised to invest too large a proportion of their total available funds into
investment products. Customers who were inexperienced in investments were not
properly identified and complaint handlers did not take this into account appropriately
when determining the suitability of the advice they were given.

Inadequate arrangements for cascading complaints decisions

4.18. BOS failed to have adequate arrangements in place for cascading analysis of trends in
complaints upheld by the Firm and the FOS to its complaint handlers. From July
2008, BOS compiled data on trends in its own complaints decisions but it was not
until April 2009 that BOS undertook detailed analysis of these trends. Nor did it give
appropriate guidance to its complaint handlers in relation to them.

4.19. Although informal communication of these issues did on occasion occur, the lack of
any formal arrangements meant that information was not communicated on a
consistent basis and complaint handlers were not always aware of and did not always
take account of them when deciding complaints. This increased the risk of complaints
being dealt with inconsistently and unfairly.

4.20. For example, BOS identified, in November 2007, that the FOS was then overturning
the decision on more than 40% of BOS complaints referred to it. Trends from the
cases upheld by FOS included customers who were in or near retirement, had little or
no experience of investment products and who had a very low appetite for investment
risk.

4.21. Once BOS had identified this issue, it should have promptly updated its guidance for
complaint handlers to instruct them on the additional issues to consider when
assessing whether to uphold complaints from these types of customers. However, it
was not until November 2008 that it gave guidance to its complaint handlers about the
approach they should take. In addition, BOS should have considered whether it
needed to act on its own initiative to carry out a review of its past advice-related
complaints from such customers to ensure they did not suffer detriment or were not
otherwise disadvantaged as a result of BOS’s handling of their complaint.

4.22. BOS failed to take prompt and effective action to address this issue, despite having
been alerted to it at an early stage and the risk that customers were not treated fairly.

Failure to perform adequate root cause analysis of complaints

4.23. During the Relevant Period, BOS failed to carry out timely and effective root cause
analysis of the Complaints it received to enable it to identify and remedy issues in its
processes which could have been highlighted by those Complaints.

Failure to investigate properly potential root causes

4.24. BOS placed too great a reliance on its low uphold rate for complaints in determining
whether it was appropriate to undertake further work to investigate the root causes of
the Complaints it received. This over reliance on low uphold rates was wrong
because:

(1)
BOS knew the FOS was overturning 40-50% of its decisions to decline
complaints;

(2)
BOS recognised before July 2008 that its management information and root
cause analysis needed to be strengthened to ensure that it could be certain it
was treating customers fairly; and

(3)
notwithstanding the impact of volatile market conditions in 2008, at which
point BOS’s advice related complaints more than doubled, BOS should have
more fully considered whether that increase included an increase in the
proportion of legitimate complaints and the root causes of any such
complaints.

4.25. It is now clear, from the results of the reviews of the complaints referred to in
paragraphs 4.4 to 4.6 above, that BOS’s low uphold rate was due to poor complaint
handling.

Deficiencies in record keeping processes

4.26. Deficiencies in BOS’s record keeping processes for complaint handlers increased the
risk that potential root causes would continue undetected.

4.27. Whilst complaint handlers were asked to keep records of their reasons for upholding
complaints, they were told in written guidance to take care when pointing to failings
on the part of sales staff. This was because if they identified such failings, these were
noted in BOS’s records of the sales performance of individual staff members and
could have led to BOS determining that they were no longer competent to sell the
Investments. In addition, complaint handlers were advised not to point to failings in
BOS’s sales processes other than in exceptional circumstances.

4.28. As a result of the above guidance, complaint handlers were inappropriately influenced
to indicate the reason for upholding a complaint was ‘unclear’.

Delays in improving processes around BOS’s risk profiling tool

4.29. From July 2008, the root cause analysis carried out by BOS was ineffective in
determining whether it was necessary and appropriate to take action to improve any
underlying processes that affected a wider population of customers. If BOS had
carried out appropriate analysis of the root causes of the Complaints it received in a
timely manner, it would have identified, sooner than it did, opportunities to improve
its processes.

4.30. The failures in BOS’s root cause analysis were in part due to weaknesses in the
underlying documentation. For example, some customers complained that the
Investments, which were recommended to them, were too risky for them. Their
general appetite for taking investment risk had been determined by BOS with the
assistance of the psychometric risk profiling tool. The tool aided discussions between
BOS’s sales staff and customers, helping to provide a structured and consistent
starting point for discussions around the customer’s specific attitude to investment
risk in relation to a particular need. However, the lack of adequate documentation and

evidence of these discussions contributed to BOS’s failure to properly uphold
Complaints in the appropriate circumstances.

4.31. If BOS had conducted appropriate root cause analysis, this would have enabled the
Firm to identify opportunities earlier to improve its documentation and evidence from
the point of sale, particularly for those customers with a general attitude to investment
risk of Cautious. It could have improved its processes by requiring its sales staff to
record a fuller explanation of their recommendations to customers to invest in the
Investments where the risks associated with the Investments might appear to be
inconsistent with the customer’s responses to the questions in the risk profiling tool.

4.32. More detailed documentation was needed to allow BOS’s complaint handlers to better
determine complaints, including upholding more Complaints in appropriate
circumstances and to enable BOS to take comfort from its root cause analysis that it
had a robust and effective sales process in place.

4.33. BOS will carry out a targeted review of its sales of investment products to the 8,000
customers who purchased Investments and whose answers to the questions asked
under the psychometric risk profiling tool in use between 30 July 2007 and 1 March
2010 indicated that they had a general attitude to taking investment risk that was
cautious. All customers whose sale will be reviewed have been identified and BOS
will proactively pay compensation where necessary.

5.
ANALYSIS OF BREACHES

5.1.
On the basis of the facts and matters set out above, BOS breached Principle 3 and
Principle 6 of the FSA’s Principles for Businesses.

Principle 3 – Management and control

5.2.
Principle 3 states:

“A firm must take reasonable care to organise and control its affairs responsibly and
effectively, with adequate risk management systems.”

5.3.
By reason of the matters set out in paragraphs 4.1 to 4.33 above, BOS breached
Principle 3 by failing, during the Relevant Period, to have effective procedures in
place to ensure advice-related Complaints about the Investments were investigated
properly and assessed competently and fairly by its complaint handlers. The Firm
also breached Principle 3 because it failed to have appropriate processes in place for
promptly feeding back to its complaint handlers analysis of trends in the Firm’s
decisions on these Complaints and to investigate and correct their root causes.

Principle 6 (Customers’ interests)

5.4.
Principle 6 states:

“A firm must pay due regard to the interest of its customers and treat them fairly.”

5.5.
By reason of the matters set out in paragraphs 4.11 to 4.33 above, BOS breached
Principle 6 by failing to ensure that customers who complained about the advice they

were given in relation to the Investments had their complaints investigated properly
and assessed competently and fairly, taking into account all relevant information.

5.6.
In addition to breaching Principles 3 and 6, the Firm breached the following rules
contained in the parts of the FSA Handbook entitled Senior Management
Arrangements, Systems and Controls (SYSC) and Dispute Resolution: Complaints
(DISP) in relation to the Complaints during the periods referred to in the Appendix.
Specifically, in relation to BOS’s failures relating to:

(1)
the investigation of complaints detailed in paragraphs 4.11 to 4.13 above, BOS
breached SYSC 6.1.2R, DISP 1.2.1R(1), DISP 1.2.21R, DISP 1.3.1R and
DISP 1.4.1R(1). In addition, BOS’s actions were not consistent with the
guidance given in DISP 1.2.4G;

(2)
the assessment of complaints detailed in paragraphs 4.14 to 4.17, BOS
breached SYSC 6.1.2R, DISP 1.2.1R(1), DISP 1.2.21R, DISP 1.3.1R, DISP
1.4.1R(2) (a) to (c). BOS’s actions were also contrary to the guidance given in
DISP 1.4.2G in relation to the factors which may be relevant in the assessment
of a complaint under DISP 1.4.1R(2). In addition, BOS did not consider
whether it needed to act on its own initiative to carry out a review of its past
advice related complaints for elderly, inexperienced and vulnerable customers
in the circumstances described in paragraphs 4.20 to 4.21 above, and this was
not consistent with the guidance given in DISP 1.3.5G;

(3)
its arrangements for cascading analysis of trends in complaints upheld by the
Firm and the FOS to its complaint handlers detailed in paragraphs 4.18 to 4.21,
BOS breached SYSC 6.1.2R, DISP 1.2.21R and DISP 1.3.1R;

(4)
its root cause analysis of complaints detailed in paragraphs 4.23 to 4.33, BOS
breached SYSC 6.1.2R, DISP 1.2.21R, DISP 1.3.3R. In relation to the
Collective Investment Plan (which is MiFID business) and the Firm’s
management information relating to the root causes of Complaints about this
product, the Firm’s conduct was not consistent with the guidance given in
DISP 1.3.4G (which applies only in relation to MiFID business).

6.
ANALYSIS OF SANCTION

Determining the level of the financial penalty

6.1.
The FSA's policy in relation to the imposition of financial penalties is set out in
Chapter 6 of the Decision Procedure and Penalties Manual (DEPP) which forms part
of the FSA Handbook. It was previously set out in Chapter 13 of the Enforcement
Manual (ENF). The Manuals set out the factors that may be of particular relevance in
determining the appropriate level of financial penalty for a firm or approved person.
The criteria are not exhaustive and all relevant circumstances of the case are taken
into consideration.

6.2.
The principal purpose of imposing a financial penalty is to promote high standards of
regulatory conduct by deterring firms which have breached regulatory requirements
from committing further breaches, deterring other firms from committing similar
breaches, and demonstrating generally the benefits of compliant behaviour.

Seriousness of the breaches

6.3.
The FSA has had regard to the seriousness of the breaches, including the nature of the
requirements breached, the number and duration of the breaches and the number of
customers who were exposed to risk of loss. For the reasons set out at paragraph 2.6
above, the FSA considers that the breaches identified in this case are of a particularly
serious nature.

The extent to which the breaches were deliberate or reckless

6.4.
The FSA does not consider that BOS deliberately or recklessly contravened
regulatory requirements.

The size, financial resources and other circumstances of the firm

6.5.
BOS has a prominent position in the retail consumer investment market. There is no
evidence to suggest that BOS is unable to pay a financial penalty.

Conduct following the breaches

6.6.
In consultation with the FSA, BOS is taking the following steps:

(1)
BOS is carrying out a wide ranging review of advice related complaints in
relation to investment products sold by its business areas. BOS will pay
compensation to all customers whose complaints should have been upheld;

(2)
BOS is also carrying out a targeted review of its sales of the Investments to the
8,000 customers who were classified as having a general attitude to risk of
Cautious as a result of the use of the psychometric risk profiling questionnaire
in use between 30 July 2007 to 1 March 2010; and

(3)
customers who may have been affected have been identified and BOS will
proactively pay compensation to those who have suffered financial loss.

6.7.
BOS has improved its complaint handling and made changes to its sales processes and
the FSA expects that these changes will lead to improved outcomes for customers.

6.8.
BOS has co-operated fully with the FSA in the course of its investigation.

Disciplinary record and compliance history

6.9.
BOS has not previously been the subject of disciplinary action by the FSA in relation
to its complaint handling arrangements. In January 2004, the FSA took enforcement
action against the Firm in relation to its money laundering arrangements, imposing a
fine of £1,250,000.

Previous action taken by the FSA in relation to similar findings

6.10. In determining whether and what financial penalty to impose on BOS the FSA has
taken into account action taken by the FSA in relation to other authorised persons for
comparable behaviour.

FSA guidance and other published material

6.11. The FSA has had regard to the fact that it has published a series of high profile
communications highlighting the requirement upon firms to treat customers fairly,
particularly in the area of complaints handling.

7.
CONCLUSION

7.1.
Having regard to the seriousness of the breaches and the risk they posed to the FSA’s
statutory objective of protecting consumers, the FSA has imposed a financial penalty
of £3.5 million on BOS.

8.
DECISION MAKERS

8.1.
The decision which gave rise to the obligation to give this Final Notice was made by
the Settlement Decision Makers on behalf of the FSA.

9.
IMPORTANT

9.1.
This Final Notice is given to the Firm in accordance with section 390 of the Act.

Manner of and time for Payment

9.2.
The financial penalty must be paid in full by the Firm to the FSA by no later than 6
June 2011, 14 days from the date of the Final Notice.

If the financial penalty is not paid

9.3.
If all or any of the financial penalty is outstanding on 7 June 2011, the FSA may
recover the outstanding amount as a debt owed by the Firm and due to the FSA.

9.4.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of information
about the matter to which this notice relates. Under those provisions, the FSA must
publish such information about the matter to which this notice relates as the FSA
considers appropriate. The information may be published in such manner as the FSA
considers appropriate. However, the FSA may not publish information if such
publication would, in the opinion of the FSA, be unfair to you or prejudicial to the
interests of consumers.

FSA contacts

9.5.
For more information concerning this matter generally, you should contact Samantha
Carruthers (Tel: 020 7066 0174/fax: 020 7066 0175) of the Enforcement and
Financial Crime Division of the FSA.

William Amos
FSA Enforcement and Financial Crime Division