Abbey Life has been fined £1m by the FSA for mortgage endowment mis-selling and may have to pay comp...
Abbey Life has been fined £1m by the FSA for mortgage endowment mis-selling and may have to pay compensation costs of £120 - 160m to 50,000 people, the FSA has announced this morning.
Along with other "deficiencies", Abbey Life is said to have had insufficient compliance procedures and controls between 1995 and 1999, says the FSA.
In particular, individual's attitudes to risk were not sufficiently represented in the sale of endowments to some policyholders, says the FSA, and 'Reason Why' letters were not produced to regulatory standards when it visited on three separate occasions between 1995 and 1999.
Only two weeks ago, however, IFAonline revealed Scottish Widows - subsidiary of the Lloyds TSB Group which now encompasses Abbey Life - was in the process of compensating policyholders who may have been mislead by information on disclosed charging structures for endowment mortgages.
Between 1988 and 1995, mortgage endowment policyholder were given projections based on Lautro charges - as FIMBRA regulation dictated - rather than actual charges.
But policyholders may not have been aware that they were paying higher charges, according to letters obtained by IFAonline, so Scottish Widows is now paying additional bonuses to endowment holders to compensate for the extra charges taken.
FSA officials say Abbey Life has agreed to look at all mortgage endowments sold as far back as 1988 to show willing and transparency.
Abbey Life closed to new endowment business in February 2000, just one month after some endowment policyholders began receiving "red" letters declaring there is a shortfall in the individual's fund.
Size of the fine reflects the serious nature of Abbey Life's failings, according to Carol Sergeant, managing director for regulatory processes and risk at the FSA, but it would have been much higher had it not already embarked on setting right its problems and doing so openly.
"This action is a part of FSA's 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."
The FSA's 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," adds Sargeant.
Lloyds TSB officials say £165m has been set aside to pay compensation claims and cover costs.
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