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Friends Provident fined £675,000 for miss-handling of mortgage endowment complaintsendowment valuation to sell an endowment

FSA/PN/135/2003
17 December 2003

The Financial Conduct 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. endowment valuation

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:

"Firms should be under no illusion as to the standards expected in relation to complaints handling. We will not tolerate poor systems which expose consumers to the risk that genuine complaints, which may deserve compensation, are rejected unfairly".

"Friends Provident and its senior management failed to respond in an effective and timely manner to FSA guidance and to correct problems found in its systems when it had reasonable opportunity to do so. It is a firm's responsibility to ensure that its practices are fair and we will continue to monitor firms' complaints handling. Firms found to be failing their customers face regulatory action".

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.

Notes for editors

    1. The full text of the Final Notice issued by the Regulatory Decisions Committee, which includes the background to the case, the relevant statutory provisions and regulatory requirements contravened and the factors taken into account by the RDC when setting the level of the fine, may be found on the FSA web site
    2. Specifically, the firm's breaches were that it:
    • 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.


Winterthur Life UK, a unit of the Swiss banking giant Credit Suisse, has been fined £500,000 by the UK's financial watchdog for miss-selling endowment mortgages.

It is the first fine for endowment mis-selling that the Financial Conduct Authority (FSA) has imposed.

Winterthur has been ordered to pay the £500,000 fine as well as costs of £57,000 to the City regulator under a ruling announced on Tuesday.

Winterthur must pay total compensation of £10m to eligible customers.

About 10,000 policyholders, who were sold mortgage endowment policies between March 1998 and December 1999, should be in line for a payment.

Other probes

While the FSA has taken action over endowments in the past, these have been restricted to pricing issues.

The FSA has also launched probes into a number of other companies.

Decisions will be expected in the near future - and even bigger fines can be expected, pensions experts say.

Major failings

Winterthur stopped selling endowment policies in July 2000.

The problems relate to a system called Winteract, a computerised sales system which was used by Winterthur's advisers between March 1998 and December 1999 to generate recommendations for customers.

Its computerised questionnaire, known as the "Attitude Survey", was designed to establish a customer's attitude to risk.

But the FSA found major failings with the use of the system, including the fact that customers were not provided with a "clear written explanation of the reasons why a recommendation had been made".

Winterthur had also failed to monitor how suitable the recommendations generated by the Winteract system were for clients and did not monitor its staff properly.

Co-operative

Policyholders who have surrendered their policies could also be in line for compensation under the terms of the ruling.

Customers with policies that are affected will be contacted over the next 24 weeks by Winterthur.

Carol Sergeant, managing director for Regulatory Process and Risk at the FSA said: "Where consumers have suffered loss we want to see firms act quickly and decisively to put things right.

"The level of fine here reflects the fact that Winterthur has dealt with this problem quickly, openly and co-operatively."

Winterthur Life has set up a help line on 0800 1380290. It is open from 9am to 5pm, Monday to Friday.