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Santander Fined for Failing to Warn Customers Over Lack of Protections on its Bonds

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Santender launched a series of investments back in 2010. Investors willingly purchased those investments without any knowledge that they were not protected by the Financial Services Compensation Scheme. As a result, the bank has since been fined £1.5 million.

More concerning was that some of the claims seemed almost deliberately misleading. Up until 2010, the bank claimed that its investments may be covered by the Financial Services Compensation Scheme. They never explicitly defined what they meant by “may be covered.” Instead of providing any clarification themselves, they sent their customers to the FSCS website.

The bigger concern was that many of these investments were composed of stocks and other volatile securities. The FSCS can’t do a lot to protect investors from losses they may incur through volatile trading. More importantly, the FSCS cannot reimburse customers if Santander underwent bankruptcy. The only time they could reimburse their customers would be if the product itself was defective or damaged in some way.

This could create several challenges for its customers if the bank went broke. According to the Financial Services Authority, many of the customers who purchased these products may have been opposed to taking risks. Without properly disclosing the fact that they were not going to be covered in the event the bank failed, they would have decided against investing. Also, more astute investors may have insisted on a premium for their capital.

Tracey McDermott is an expert on financial fraud with the FSA. McDermott said that companies must make sure their claims are well understood and are made with complete transparency. Customers cannot make informed decisions if they do not understand what they are buying and what risks are associated with it.

Santander sold packages with misleading information for a couple of years. After another major bank failed after the financial crash, customers began to ask for more input on what protections the investments would offer. It took Santander nearly a year to follow up with them, which made many of Santenders’s customers very uneasy. After nearly a year and a half, Santander changed its wording to tell customers that it was unlikely that their investments would be reimbursed under the Financial Services Compensation Scheme if the bank failed.

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