The Financial Services Authority (FSA) today fined Barclays £7.7m for investment advice failures relating to the sale of two high-risk funds – the highest ever fine for retail failings. It will result in the firm paying out up to £60m in compensation to victims.

Between July 2006 and November 2008 Barclays sold Aviva's Global Balanced Income Fund and Global Cautious Income Fund to 12,331 people, with investments totalling £692m. The funds subsequently nose-dived in value.

The FSA said Barclays failed to make sure the funds were suitable for customers, failed to train staff to adequately explain the risks associated with the funds, and had not produced brochures that explained the risks involved.

The regulator also said Barclays was aware of the potential mis-selling as early as June 2008, but failed to take "appropriate and timely action".

A total of 1,730 investors, most of whom were retired or nearing retirement, complained about the advice they were given to invest in the funds – approximately one in seven investors. The FSA's investigation discovered 51% of Cautious Income Fund sales and 74% of Balanced Income Fund sales "required further consideration".

Barclays has already paid about £17m in compensation and the FSA estimates up to £42m more could be paid to customers who received unsuitable advice.

Victims include Ilona Berta and her husband, Kalman, who were aged 75 and 73 when they invested £200,000 in the Global Cautious Income fund in July 2007, only to see its value plummet to just £135,000 by October 2008. Barclays rejected their complaint.

Paul Cooper, senior partner at government-registered complaints management firm Claims-uk.co.uk, and adviser to the Barclays Investment Victims Club, which organised protests last year, said this was a victory of sorts for the victims.

"It has been quite a nightmare for people who have lost out. A bank merely sending out forms saying investments can go down as well as up is not the same as properly assessing how risky a fund is for individual clients.

"But Barclays dismissed many complaints from people who had lost half their life savings, and those complaints have been with the Financial Ombudsman for the best part of two years. Some of the money the FSA has fined Barclays should be going to the victims for the distress they have experienced".

Margaret Cole, the FSA's managing director of enforcement and financial crime, said: "The FSA requires firms to have robust procedures in place to ensure any advice given to customers is suitable. Therefore, when recommending investment products, firms should take account of a customer's financial circumstances, their attitude to risk and what they hope to achieve by investing.

"On this occasion, however, Barclays failed to do this and thousands of investors, many of whom were seeking to invest their retirement savings, have suffered. To compound matters, Barclays failed to take effective action when it detected the failings at an early stage.

"Because of this, and given Barclays' position as one of the UK's major retail banks, we view these breaches as particularly serious and fully deserving of what is a very substantial fine."

The FSA said anyone who invested in the Global Balanced Income Fund and Global Cautious Income Fund and has a question relating to the advice they received should contact Barclays on 0800 587 7495 or visit its website.