The Financial Conduct Authority (FCA) said on Wednesday there was a "significant risk" the British arm of Spanish bank Santander gave unsuitable advice to customers two years ago and its approach to investors' risk appetites was inadequate.

The advice included making statements to investors that an investment "will likely double" and factual errors such as stating the FTSE 100 share index was 8,000-9,000 points in 2008, when it traded between 3,665 and 6,535.

Advisers also told customers that commission was irrelevant and they would not be paying any, when in fact commission was 7.75 percent for one of the products, the FCA said.

The watchdog said Santander UK needed to offer redress to affected customers, although it said any payments were likely to be minimal as stock markets had risen since most investments were taken out.

The flaws were uncovered in 2012 in a so-called mystery shopping review involving spot checks on the industry, and involved advice given between 2010 and 2012.

Santander said on Wednesday it had fully co-operated with the investigation - which reduced its fine by 30 percent - and that after getting the regulator's mystery shopping results it had closed its old bancassurance business and overhauled its branch-based investment advice service.

All the major banks have restructured how they provide financial advice to retail customers following the introduction of the retail distribution review at the start of 2013, which aims to ensure advisers are better trained and that fees for financial advice are more transparent.

Santander UK now only gives advice to customers with at least 50,000 pounds to invest, compared with no lower limit before the distribution review, and has about 100 advisers spread across its branch network, against about 800 previously.

The FCA said its investigation had found that Santander UK's advisers were not fully on top of customers' personal circumstances before making a recommendation, including understanding how much risk they were willing to take.

Santander's retail investment customers had "very low" to "medium" risk appetites, according to the bank's own assessment. The customers had an average age of 60, and 30 percent were over 65.

The FCA said the bank failed to make sure new advisers were properly trained before being allowed to give investment advice and did not properly monitor the quality of advice.

(Editing by Pravin Char)

By Steve Slater