Abbey Life fined 1m for endowment mis-selling and other failings

Abbey Life closed to new business in February 2000 and embarked on a remedial programme intended to identify all areas of potential disadvantage to consumers which might have arisen as a result of its compliance weaknesses.

The size of the fine reflects the serious nature of Abbey Lifes failings. The penalty would, however, have been much higher were it not for the extensive and proactive remedial action taken by Abbey Life, the acceptance of responsibility by its senior management and the degree of openness and co-operation it has shown to the regulator in seeking to resolve the issues identified.

Carol Sergeant, Managing Director for Regulatory Processes and Risk at the FSA, said:

"This action is a part of FSAs overall approach to mis-selling of mortgage endowments. The FSA is committed to ensuring that customers affected by mis-selling, whether of mortgage endowments or other products, are appropriately compensated and that action is taken where there are significant weaknesses in systems and controls. "

"The failings in this case are serious. Weaknesses in Abbey Life''s internal controls occurred over an extended period of time and exposed large numbers of consumers, particularly those who purchased mortgage endowments, to the risk of loss."

"Abbey Life has voluntarily agreed to extend its review of mortgage endowment sales back to 1988, at considerable cost to itself, and has also undertaken a wide ranging review of other products. Abbey Life has, in doing so, demonstrated a high regard for the priority of the interests of its customers. Senior management has fully accepted its responsibilities to customers and the review now being undertaken should ensure that they receive appropriate redress. Without this approach by Abbey Life, the penalty imposed would have been significantly greater."

The FSAs action against Abbey Life results from deficiencies in Abbey Life''s compliance procedures and controls between 1995 and 1999 and specific and systemic weaknesses in relation to the sale of mortgage endowments.

Abbey Lifes breaches are particularly serious due to the following factors:

• They occurred over an extended period of time. Weaknesses in Abbey Lifes systems for monitoring its advisers, the standards of its records, the standards of its Reason Why letters as well as, in a limited number of cases, the suitability of sales, were identified by PIA in three consecutive visits in 1995, 1997 and 1999 and by Group Compliance in 1997 and 1999. Abbey Life failed to take adequate steps to resolve the issues identified in a timely and effective fashion.

• There was a systemic failure in Abbey Lifes procedures relating to the sale of mortgage endowments. Specifically Abbey Lifes procedures failed to ensure that recommendations to purchase mortgage endowments were made only to customers who had an appropriate attitude to risk. As a result Abbeys advisers made widespread unsuitable recommendations of mortgage endowments to retail consumers.

• The size and nature of Abbey Life (which had over 1,500 advisers) meant that these failures exposed a large number of consumers to potential loss.

The failings in this case merit a very significant financial penalty. In fixing the amount of the penalty to be imposed, however, the FSA has recognised that these failings have been substantially mitigated by the extensive and proactive remedial action undertaken by Abbey Life. In particular:

• Abbey Life has proactively reviewed all areas of its business where potential disadvantage to customers might have arisen from its compliance weaknesses.

• In addition, Abbey Life co-operated with PIA and subsequently the FSA, in undertaking a sample review of mortgage endowment sales focussing on the assessment of attitude to risk. Abbey Life immediately accepted the results of the sample review and proactively initiated a comprehensive review of all mortgage endowment sales back to 29 April 1988 (when regulation began under the Financial Services Act 1988). This will ensure that mortgage endowment customers who may have lost out as a result of Abbey Lifes failures will be compensated.

• The approach Abbey Life has adopted in dealing with these issues has demonstrated a high regard for the priority of its consumers'' interests. Abbey Life has fully recognised its moral, as well as legal and regulatory obligations, to its consumers. Where there has been any doubt or confusion about whether consumers may have been mis-sold, Abbey Life has resolved this in favour of the customer.

• Abbey Life has been open and co-operative with the FSA. Its approach has ensured that consumers will receive redress in a timely and effective fashion.

In the absence of such mitigating factors, and, in particular, without the level of co-operation and proactivity demonstrated in resolving the issues identified, the penalty imposed would have been very significantly greater.

Notes for editors

1. The penalty was imposed pursuant to Section 206 Financial Services and Markets Act 2000 in respect of breaches by Abbey Life of PIA Rules 5.1.1, 7.1.2, 7.1.5, 7.2.1, Adopted LAUTRO Rule L3.15(3) and Paragraph L8 of Schedule L2 to the Adopted LAUTRO Rules and SIB Principles 2 and 9. Full details of the case are available from the FSA.

2. Customers need not take any action. Abbey Life has already written to the vast majority of potentially affected customers. The remaining few letters are being sent out shortly. There is also a customer helpline on 0845 602 3346.

3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection of consumers; and fighting financial crime.

4. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.