The £1.26 million fine was levied on the grounds that Norwich Union Life did not have effective protection systems and controls in place.
This left customers' confidential information at significant risk, failings which resulted in a number of actual and attempted frauds against Norwich Union Life's customers - an issue which was not rectified in an appropriate and timely manner, even when identified by the firm's own compliance department.
The weaknesses in the firm's systems and controls allowed fraudsters to use publicly available information including names and dates of birth to impersonate customers and obtain sensitive customer details from its call centres. Also, in some cases they were able to ask for confidential customer records such as addresses and bank account details to be altered.
The fraudsters then used the information to request the surrender of 74 customers' policies totalling £3.3 million in 2006.
During its investigation, the regulator found that Norwich Union Life had failed to properly assess the risks posed to its business by financial crime, including fraudsters seeking to obtain customers' confidential information.
Margaret Cole, director of enforcement, said: "Norwich Union Life let down its customers by not taking reasonable steps to keep their personal and financial information safe and secure.
"It is vital that firms have robust systems and controls in place to make sure that customers' details do not fall into the wrong hands.
"Firms must also frequently review their controls to tackle the growing threat of identity theft.
"This fine is a clear message that the FSA takes information security seriously and requires that firms do so too."
The regulator said that Norwich Union Life had co-operated fully with the investigation, and had taken a number of remedial actions. This included co-operating with the police to identify and arrest the fraudsters, and carrying out a review of its information security processes. Norwich Union has reinstated all surrendered policies in full.
Norwich Union Life agreed to settle at the early stage of the FSA's investigation and qualified for a 30 per cent discount under the FSA's executive settlement procedure – without the discount, the fine would have been £1.8 million.
