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FSA fines Bank of Scotland £4.2m for mortgage failings

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Bank of Scotland has been fined £4.2m by the Financial Services Authority (FSA) for failing to keep accurate mortgage records.

The watchdog said failures in the bank’s systems meant it held inaccurate mortgage records for 250,000 of its customers.

The FSA said mortgage information was being held on two separate unaligned systems, and problems also arose where manual updates were not always carried out.

The bank then relied on incorrect records for considerable periods between 2004 and 2011.

The FSA explained the issue first came to light when Bank of Scotland put in place a programme to rectify customer confusion over information about their contracts, specifically standard variable rate mortgages.

While monitoring a consumer forum website, the FSA said it found a number of customers complaining 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 the bank 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.

Tracey McDermott, FSA director of enforcement and financial crime, said: “These mistakes stemmed from the fact 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.

“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.”

BOS was found to have 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.

BOS agreed to settle with the FSA at an early stage of the investigation. Without this early settlement and the firm’s co-operation, the fine would have been £6m.

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