BUILDING society Bradford and Bingley yesterday agreed to pay £6m in compensation to nearly 7,000 customers who were misled over bond sales.

The Financial Services Authority (FSA) fined the company £650,000 for mis-selling precipice and with-profit bonds.

About 6,800 affected customers will receive compensation, the financial watchdog said.

The FSA issued the fine for the mis-selling of the bonds, criticising the company for not making suitable recommendations to customers, not maintaining adequate records of sales and not having adequate systems and controls to prevent and ultimately address these failures.

Precipice bonds, which offer high income returns, but fail to provide protection against the loss of the invested capital, have been the subject of several high-profile reprimands issued by the watchdog recently.

LloydsTSB, Capita Trust Company and Chase de Vere Investments have all recently faced fines.

The B&B mis-sales were made more serious because the company had been warned that there were significant issues with the quality of its customer records on a number of occasions from 1998 onwards.

The company failed to appreciate the significance of those warnings. The failings exposed 6,800 customers to a higher risk of financial loss than they were willing to accept, the watchdog said.

Andrew Procter, the FSA's director of enforcement, said: "This is a very serious case of mis-selling which was made worse by the fact that Bradford and Bingley had prior warning of the specific concerns about its record keeping.

''However, the firm failed to pay sufficient attention to these warnings and take adequate action, which put thousands of its customers at risk of financial loss."