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FSA/PN/090/2006
7 September 2006

The Financial Services Authority (FSA) has today fined The Carphone Warehouse Ltd £245,000 for not treating its customers fairly following telephone sales of general insurance and for failing to inform the regulator in a timely manner of significant systems failures within its telesales distribution channel.

An FSA investigation found that between 14 January and 24 October 2005 The Carphone Warehouse Ltd failed to send 118,000 customers, who had bought mobile phone insurance through its telesales channel, a Statement of Demands and Needs (SDN) in written form. It was subsequently discovered that 56,000 of those customers also did not receive a policy summary setting out its main features.

This was considered a serious failing by the FSA as both documents contain important information that helps consumers understand the policy they are buying. Where a customer has received advice, the SDN is designed to show the customer why the product recommended is suitable in the context of their demands and needs; for example whether the customer already has any relevant existing insurance. The policy summary details key facts such as the main features and benefits of the insurance, how long it lasts, and the time period the consumer has to cancel the policy, and it also highlights any significant and unusual exclusions or limitations the policy may have.

This was seen as a breach of the FSA's 'Treating Customers Fairly' principle which requires firms to pay due regard to the interests of their customers and treat them fairly.

Sarah Wilson, Director of Retail Firms at the FSA said:

"The Carphone Warehouse Ltd failed its telephone sales consumers by not giving them all the information necessary for them properly to understand the insurance product they had bought. Customers were therefore exposed to the risk of being left with an insurance policy which was unnecessary or provided incomplete cover leading to rejected claims. In either case they could suffer some degree of financial loss.

"The FSA's general insurance rules have been put in place to provide an appropriate level of consumer protection. Firms must treat their customers fairly. We will not hesitate to consider enforcement action in circumstances where a firm's systems or actions leave open the potential for significant consumer detriment."

The level of the fine also reflects the firm's failure to notify the FSA of the problems in its telesales distribution channel in a timely manner. This was considered to be a breach of the FSA's Principle which requires firms to disclose to the FSA anything about their business of which the FSA would reasonably expect notice.

The Carphone Warehouse Ltd became aware of its non compliance with the SDN requirement in March 2005. However, from March to October the firm continued to sell insurance when it knew it was not complying with the FSA's rule. The FSA was only made aware of the issue in October and after a further request for information from the FSA the firm discovered that there was no mechanism in place for sending out policy summaries to telesales customers who had signed up through its E2Save sales channel. This was seen as a breach of the FSA's Principles which require firms to conduct their business with due skill, care and diligence and to take reasonable care to organise and control their affairs responsibly and effectively.

Subsequently, The Carphone Warehouse Ltd did agree to carry out a retrospective mailing of both documents to the affected consumers and it has committed to a comprehensive review to minimise the risk of consumers being disadvantaged in the future. The Carphone Warehouse Ltd received a 30% discount on its fine as it agreed to settle the case at an early stage.

Sarah Wilson said:

"The Carphone Warehouse Ltd should have been open and provided complete and timely information to us. As a result of the extended delay in fixing the problem, over 100,000 customers were potentially disadvantaged. The FSA expects firms to inform us of any significant issue especially when there could be consumer detriment."

"However we are pleased that The Carphone Warehouse Ltd is addressing these problems. Investigating consumer detriment and offering redress where appropriate is an important part of the TCF principle."

Notes for editors

1. The final notice details the full facts of the investigation.
2. 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.
3. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.