FSA/PN/135/2003
17 December 2003

The Financial Services Authority (FSA) has fined Friends Provident Life and Pensions Limited £675,000 for failures in its procedures which led to the miss-handling of mortgage endowment complaints. The failures were identified following a visit by the FSA. The firm is now voluntarily reviewing all endowment complaints that were rejected between January 2000 and 10 February 2003. Independent accountants have been appointed by Friends Provident to oversee this process.

Friends Provident received 21,788 mortgage endowment complaints between March 2000, when its dedicated complaints handling team was established, and February 2003, when its defective procedures were replaced. Approximately 5,500 customers whose complaints were rejected were exposed to the risk that their complaints were in fact genuine and deserving of redress, but were rejected because the procedures were inherently not fair and were biased against customers.

The firm's failures persisted from October 2001 until February 2003. These failures demand a significant financial penalty as they arose from a systemic weakness in the firm's procedures and exposed a large number of customers to potential loss.

The FSA has also 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 endowment complaints handling, including detailed guidance in a letter from John Tiner, then Managing Director of the FSA, in April 2002.

Specific failings in the firm's procedures and its handling of mortgage endowment complaints included:

• a readiness to dismiss consumers' evidence when it was not supported by documentary proof;
• 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
• an assumption that if a consumer failed to exercise their cancellation rights, having received all the post sale disclosure information, this indicated that they were satisfied with the advice and the product at the time of sale.

Andrew Procter, Director of Enforcement said:

These failings have, however, been mitigated significantly by the co-operation demonstrated by Friends Provident and the remedial action taken as a result of the FSA's action, including:

• committing to the adoption of a new approach to mortgage endowment complaints, which provided more favourable treatment to customers;
• setting up a separate group to review past mortgage endowment complaints in order to ensure customers were treated fairly;
• seeking external support and guidance in bringing about the required changes by engaging an independent firm of accountants to review existing procedures, design new written procedures, design and deliver a training programme and complete quality assurance work on the new mortgage endowment complaints-handling system;

These procedures should ensure that mortgage endowment complainants will be offered redress where appropriate and that past mistakes are not repeated.

• failed to establish and maintain appropriate and effective procedures for the proper handling of mortgage endowment complaints;
• failed to identify and remedy recurring or systemic problems in its mortgage endowment complaints handling procedures;
• failed to ensure that each mortgage endowment complaint received was adequately investigated;
• failed to put in place appropriate management controls, and failed to take reasonable steps, to ensure that it handled mortgage endowment complaints fairly, consistently and promptly; and
• failed to ensure, and failed to take reasonable steps to ensure that decision letters to customers regarding mortgage endowment complaints were clear and fair, and not misleading, in content.
• Friends Provident sold 216,679 mortgage endowments polices in the period from 29 April 1988 to 31 December 2001.

1. Friends Provident has been the subject of formal disciplinary action on one previous occasion. In September 1997, Friends Provident was ordered by PIA’s Disciplinary Committee to pay a fine of £450,000. This related to its failure to take all reasonable steps to carry out the review of past pension transfer and opt-out business sold by Friends Provident or to monitor the review by other businesses for which it had accepted responsibility. Friends Provident was also ordered to pay PIA’s costs of £20,000.
2. Friends Provident Life and Pensions Limited registered offices are at Pixham End, Dorking, Surrey RH4 1QA.
3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.