The Perils of Vicarious Liability

Published on Wednesday 7th December 2011 by Dan Holloway in Professional Indemnity

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This week HSBC received a record £10.5m fine from the Financial Services Authority (FSA) for misleading elderly savers. The bank had not, of itself, engaged in misleading practices, however the case was triggered by a now defunct subsidiary, Nursing Homes Fees Agency (NHFA), which, together with two UK charities, had secured funding from the Big Lottery Fund to provide an advice service for elderly people in care.

This sounds like a worthy scheme, however the NHFA was found to have miss-sold financial packages to almost 3,000 elderly customers, with an average age of 83 years, living in care accommodation. The advice given was that customers should fund their care by purchasing five-year bonds.

When the FSA instigated a third-party review, it was found that approximately nine out of ten participants were ‘unsuitable’ candidates for an investment that averaged £115,000 per person: many of the elderly people were likely to die before the investment had matured.

Although an HSBC spokesman stated that NHFA was “completely separate” from the bank, and despite the fact that HSBC reported NHFA to the FSA in 2009, the parent company was still held to be liable and fined accordingly. This is a salutary reminder, and one that reflects on the position of companies like the UK’s News International, for example, that businesses can be held to account for misdeeds on the part of their subsidiaries.

This is an expensive lesson but, presumably, HSBC has sufficient professional indemnity insurance in place to cover not just the £10.3 million fine, but also the further £29.3 million it is expected to pay in compensation to customers.

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