The flaws identified occurred between May 2001 and April 2003.
The firm is now voluntarily reviewing complaints rejected from January 2000 and April 2003, including around 1,000 endowment complaints that were rejected during the period of breach and which in practice is the number of customers who may have suffered loss.
Important parts of the firm's guidance issued to its staff on the operation of its complaint handling procedures were inadequate. In a number of the complaint cases examined by the FSA complaint handlers had conducted poor quality investigations and there was a failure to gather sufficient evidence to make a fair assessment of both the consumer's attitude to the risk and the suitability of the sale.
Andrew Procter, FSA's Director of Enforcement, said:
"The fair treatment of customers does not begin and end at the point of clinching a sale. It applies to all aspects of the relationship between firm and customer including the fair handling of a customer complaint. Where firms do not deliver the required standards and fail to treat their customers fairly we will intervene."
In December 2003 the FSA fined Friends Provident Life and Pensions Limited £675,000 for mis-handling of mortgage endowment complaints. Five other firms have been fined £5.2 million in relation to mortgage endowments. There are also a further 19 firms, who have not been publicly disciplined, who are reviewing their sales of mortgage endowments. All consumers will be compensated where appropriate.
The failures were identified following a visit by the FSA in September 2002. Allied Dunbar developed procedures for dealing specifically with mortgage endowment complaints, and although these were amended on numerous occasions, the amendments failed to address all of the flaws in the procedures.
Allied Dunbar's failure to deal appropriately with its mortgage endowment complaints occurred during a time when the FSA had placed great emphasis on the importance of adequate complaints handling systems. To reinforce this point the regulator has, since 1999, issued substantial guidance and updates on mortgage endowments complaints handling, including detailed guidance in a letter from John Tiner, then a Managing Director of the FSA, in April 2002.
Specific failings in the firm's procedures and its handling of mortgage endowment complaints included:
* not giving clear instructions to complaint handling staff about the types of evidence they should consider (e.g. statements from the original sales adviser, point of sale documents, the customer’s version of events);
* not giving clear instructions about the weight to be attached to the types of evidence in coming to a decision;
* a guidance update issued to complaint handling staff in June 2002 which contradicted guidance set out in the letter from John Tiner that had been issued only some two months previously. The update restricted complaint handlers’ ability to uphold a complaint where the sale was plainly unsuitable if for example the customer did not complain specifically that the sales adviser failed to explain the risks of an endowment policy;
* the complaint handling systems, including management information systems, produced inadequate information to identify risks of regulatory concern, particularly given the volume of endowment complaints received from 2002 onwards;
* in a number of the complaint cases examined by the FSA, complaint handlers conducted poor quality investigations, failing to gather sufficient evidence or to make a fair assessment of that evidence, and may therefore have made unsound decisions to reject complaints;
* an assumption that a pre-existing endowment, or other investment held at the time of sale, was sufficient evidence that the customer had an understanding of the risk associated with the product; and
* a tendency to give disproportionate weight to sales advisers’ versions of events when assessing the facts surrounding the consumer's complaint.
These failings have, however, been mitigated by the co-operation demonstrated by Allied Dunbar. In particular;
* the firm has now introduced new complaints handling procedures which address the FSA's concerns;
* the firm will complete its review of all complaints rejected since January 2000 by April 2004, and customers who have suffered a loss as a result of a mis-sale will be compensated;
* from December 2002 the firm's senior management signalled proactively the firm's intention to correct any defects in its procedures to ensure that its customers are treated fairly; and
* Allied Dunbar co-operated fully with the FSA's investigation.
