The recent £900 000 fine levied on the Thinc Group could pave the way for more claims in the financial services sector, warns Browne Jacobson, the specialist insurance law firm.
Nik Carle, a partner in the firm’s professional indemnity (PI) group, suggests lenders and financial advisers would do well to review their processes in the wake of the fine.
While the significant size of the fine was based on Thinc’s serious failings in advising on sub-prime products, the move by the regulator signals a clear resolve to punish shoddy practice across the board, he says.
“This decisive move by the FSA sets a high bar for the assessment of sub-prime lending and advisory practice. There is certainly scope to adopt the FSA’s ‘Principles for Businesses’ as a benchmark when litigating IFA claims and contributory negligence allegations generally in this field,” Carle says.
Referring to the FSA’s ruling against Thinc, Carle highlights two key Principles- numbers 9 and 3.
He explains: “While Principle 9 concerns a firm’s obligation to take care that the advice given to customers is suitable in all circumstances, Principle 3 requires firms to organise and control their affairs both responsibly and effectively, putting adequate risk management systems in place.
“In the case of Thinc, the business could not prove to the FSA that applicants’ credit histories merited the sale of a sub-prime product. Nor could they show that a good match had been struck between the product and the applicants’ needs and circumstances or that there had been active consideration of the applicants’ ability to afford the sub-prime mortgage contract.”
Carle is urging PI insurers and advisers with exposures in the sub-prime market to take a lead from the Thinc case and apply its lessons in practice.
He says: “With Thinc, we now have the makings of an industry standard for sub-prime selling and the FSA’s investigation is bound to be regularly cited as a starting point when tackling professional liability claims in this sector.”
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