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Royal London to pay
millions in compensation to 30,000 investors
Friday January 19, 2001
Two businesses in the Royal London insurance group were yesterday fined £700,000 for rule breaches, including the miss-selling of endowment policies, and are set to pay £31m in compensation to 30,000 investors who have lost out.
The penalty imposed on United Friendly Insurance and Refuge Assurance is one of the largest announced by the Financial Conduct Authority, which has been keen to show it is committed to tackling the endowment mortgage crisis which could potentially affect millions of homeowners.
The firms were each fined £350,000 for a string of rule breaches relating to sales of endowment savings policies, but expect to pay compensation to some customers who were sold mortgage endowments that are designed to repay a home loan.
The two companies - part of the United Assurance group, acquired by Royal London last April - were guilty of giving some customers bad advice, resulting in people buying policies that were not appropriate for their needs.
While a visit to the firms by the regulator originally uncovered problems concerning savings policies, it also appears that some people with mortgage endowments may have lost out, and the companies are reviewing sales of these to see what redress may be due.
A Royal London spokesman said all those affected would receive compensation averaging £1,000 each by the end of this year.
The cost of this would be met from the two firms' life funds and would not have an impact on Royal London members, he added.
The FSA said the firms had given unsuitable advice in that they "failed to ensure that the contract was affordable to the customer and establish that the customer needed the contract".
They also did not keep proper records to show that the recommendations made were suitable, failed to maintain a proper system of compliance control, did not adequately monitor the conduct of their staff and failed to ensure that customer complaints had been properly investigated. The breaches occurred between August 1997 and July 1998.
Compensation totalling £31m was expected to be offered to more than 30,000 people, said the FSA. The firms were also ordered to pay £23,800 costs.
United Friendly, Refuge Assurance and Royal London have committed themselves to a "radical and thorough overhaul" of the businesses.
Yesterday's fine comes less than two months after Royal Bank of Scotland subsidiary Royal Scottish Assurance was fined a record £2m and landed with a £50m compensation bill for failings mainly involving mortgage endowments.
Mike Yardley, the chief executive of Royal London, said the firms accepted the regulator's findings and "regret any distress caused" to customers. An investor helpline has been set up on 01625 605908.
•The FSA yesterday revealed the name of the person who will be its human face in court - David Mayhew, a partner in law company Clifford Chance. Mr Mayhew, 47, has been appointed the Financial Conduct Authority's leading advocate
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