The Financial Services Authority has fined HSBC £10.5m for inappropriate investment advice to elderly customers by its subsidiary firm NHFA Limited.

Nursing Homes Fees Agency was the leading supplier of financial advice on long-term care products to help pay for care costs with a market share approaching 60 per cent.

The FSA also expects £29.3m to be paid out to NHFA customers in compensation.

NHFA advised 2,485 customers between 2005 and 2010 to invest in asset-backed investment products, typically investment bonds, to fund long-term care.

The total amount invested was almost £285m, meaning the average amount per customer was approximately £115,000.

These investments were recommended to be invested for a minimum of five years, although the life expectancy of some customers was below this.

This meant they had to make withdrawals from the investment sooner than recommended leading to a faster reduction of capital than if they had received the correct advice.

The average age of customer was 83, meaning they had limited opportunity to make up any financial loss.

The notice states: “It was clear that HSBC’s subsidiary NHFA had not considered the individual needs of its elderly customers and failed in many cases to recommend suitable products for their circumstances.”

The failings of NHFA breached Principle 9 which states a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customers who is entitled to rely upon its judgement.

Tracey McDermott, acting director of enforcement and financial crime, said: “NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products. This type of behaviour undermines confidence in the financial services sector.”

HSBC agreed to settle at an early stage entitling it to a 30 per cent discount on the fine.

HSBC is undertaking a past business review to determine if customers of NHFA or their families are entitled to redress.