Barclays sold the funds to a total of 12,331 investors, most of whom were retiring or nearing retirement age - with a total investment value of £692 million.
The regulator’s investigation found that one in seven has complained to the bank about the investment advice it provided, meaning Barclays has paid out £17 million in compensation.
However, the FSA estimated that a total of £42 million could potentially be paid to investors who received poor advice.
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.”
The £7.7 million fine is the highest given out to a bank for failings in its retail operations.
