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FSA/PN/003/2006
12 January 2006

The Financial Services Authority (FSA) has fined Guardian Assurance plc and Guardian Linked Life Assurance Limited (Guardian) £750,000 for serious systemic flaws in its mortgage endowment complaints handling procedures and for not drawing the problems to the attention of the regulator.

In January 2003, Guardian introduced new procedures that were neither appropriate nor effective in terms of ensuring that mortgage endowment complaints were fairly and adequately investigated. The failings continued until December 2004, exposing the 5,600 customers whose complaints were rejected during the period to the risk of financial loss. Guardian failed to properly identify and remedy these problems, and did not notify the FSA about its concerns over the risk they posed to the fair handling of customers' complaints. Instead, the matter came to the FSA's attention during a visit in late 2004 as part of its ongoing work with the industry on mortgage endowment complaints handling.

Guardian was aware in advance that the changes it made to its procedures would be likely to significantly reduce the proportion of complaints which it upheld, and, following their introduction, the firm's uphold rate fell from 71 per cent in the second half of 2002 to 22.6 per cent of complaints in the first half of 2003. There was also a significant increase from April 2003 onwards in the proportion of complaints the firm rejected which were subsequently upheld by the Financial Ombudsman Service (FOS). While Guardian made changes to the procedures from March 2004 onwards (and by the third quarter of 2004 the firm's uphold rate had increased to 61%), significant procedural deficiencies continued throughout the period.

Margaret Cole, the FSA's Director of Enforcement, said:

"Guardian failed to treat its customers fairly by exposing those with a valid complaint to the risk that their complaint could be rejected inappropriately. Consequently, they may not have received the compensation to which they were entitled. The relatively large size of the firm's mortgage endowment customer-base meant that these failings exposed a high number of consumers to potential financial loss.

"Firms must have robust complaints handling procedures in place and must communicate to the FSA any problems or risks to the fair handling of complaints as soon as they arise. If in doubt, firms should approach the FSA and not sit on the problem. We have done considerable work in ensuring firms understand what our complaints rules require of them to ensure that customers are treated fairly. The FSA will continue to monitor this area to protect consumers and promote good practice and we will not hesitate to take action where we see these rules being breached."

In determining the level of the penalty, the FSA recognised that Guardian has committed to remedy any customer loss that may have arisen from their inappropriate procedures through a review of rejected complaints, and has assured the regulator that customers will be properly compensated where necessary. Guardian cooperated fully with the regulator's investigation and showed a willingness to promptly and efficiently settle the matter. Without these actions, the FSA would have been minded to impose a more substantial financial penalty.

Notes to editors

  1. The full text of the Final Notice issued by the FSA, includes the background to the case, the relevant statutory provisions, regulatory requirements contravened, and the factors taken into account when setting the level of the fine.
  2. In December 2003, the FSA fined Friends Provident Life and Pensions Limited £675,000 for failures in its procedures which led to the mis-handling of mortgage endowment complaints, and in March 2004, the fined Allied Dunbar Assurance plc £725,000 for serious flaws contained in its procedures for handling mortgage endowment complaints. Abbey National Ltd was fined £800,000 for mishandling mortgage endowment complaints and for providing the regulator with inaccurate and potentially misleading information.
  3. The importance of mortgage endowment complaint handling processes was highlighted through communication to the industry in October 2000, in November 2000, via PIA Regulatory Update 80, and again in July 2001, via PIA Regulatory Update 91. On 4 April 2002, a letter from then Managing Director John Tiner (now CEO) was sent to all major firms who acted as product providers or financial advisers setting out the FSA's concerns about the way in which complaints about mortgage endowment were being dealt with. A further Dear CEO letter was issued in December 2004 outlining what the FSA expected of firms' complaints handling procedures and setting out the FSA's ongoing supervision strategy in this area.
  4. 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; securing the appropriate degree of protection for consumers; and fighting financial crime.
  5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve our business capability and effectiveness.

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