As a result of the FSA's investigation BIA has agreed to undertake a past business review to identify which customers bought Regular Saving Plans (RSPs) and Whole of Life (WoL) policies, and which customers have suffered loss, and to pay compensation where appropriate.
The FSA would have proposed a fine of £425,000 on the firm for the failings. However, the limited nature of BIA's financial resources and the FSA's desire to ensure that customers are compensated in accordance with the past business review has led to a public censure being imposed.
The breaches, which occurred during the period December 2001 to September 2004, were made more serious by the fact that BIA had received numerous warnings, including four independent expert reports, about the way these products were being sold. BIA failed to act on these warnings and by doing so exposed 3,800 customers to risk of financial loss.
Margaret Cole, Director of Enforcement at the FSA, said,
"The FSA does not tolerate serious systems and controls failures in firms. The breaches in this case are particularly serious as the firm failed to ensure that the non-pension products being sold were suitable for the purpose for which they were being sold - principally as a means of funding retirement.
"The failings were made worse by the fact that BIA had received several warnings about the way the products were being sold, yet failed to take the necessary steps to rectify the situation.
"It is the responsibility of senior management to ensure that systems and controls are put in place in firms to ensure that customers are treated fairly and retail consumers achieve a fair deal."
In August 2002, the FSA first raised a concern over the way BIA members were selling RSP and WoL policies and addressed the concern as part of BIA's Risk Mitigation Programme. BIA agreed to keep the issue under constant review and promised the FSA that should concerns be raised at any time appropriate action would be taken.
Further concerns were raised internally within BIA's compliance department in late 2002 and throughout 2003, that these products were being sold in an unsuitable way and that the large volume of these sales may have been commission driven.
In light of the concerns being raised, BIA commissioned four independent reports to look into, amongst other things, the way these policies were being sold. The findings of the external reports found that:
- WoL and RSPs provided lower fund values and retirement income in comparison with the projected returns from pensions and should not therefore be used as the primary investment vehicle for building up a fund for retirement for the majority of customers;
- WoL and RSPs should not be promoted as the only alternative to pensions and should only be considered after other alternative products had been determined to be inappropriate;
- Guidance issued by BIA to its advisers in relation to the sale of WoL and RSPs as an alternative to pensions was not being followed by BIA's members resulting in a significant number of sales being made to customers outside the target sales group; and
- The failure to follow guidance was leading to the identification of significant corrective action by BIA's compliance department in the majority of reviewed cases, which in turn lead to significant backlogs in its file review work.
Following a supervision visit by the FSA in May 2004 and a review of 130 files which identified significant concerns, the firm was put under investigation.
The Enforcement investigation concluded that BIA failed to:
- Take reasonable care between 1 December 2001 and 27 September 2004 to establish and maintain effective systems and controls in relation to sales by its appointed representatives of WoL or RSPs, including failing to respond appropriately and effectively, with due regard to the interests of its customers.
- Take reasonable care to ensure that the advice of its appointed representatives, in relation to WoL and RSPs was suitable for its customers, having regard to its customers' personal and financial circumstances.
BIA's failings merited a financial penalty of £425,000 which, but for the limited nature of BIA's financial resources, the FSA would have imposed. In setting that level of penalty, recognition was given to the fact that BIA has co-operated with the Enforcement investigation. It was also recognised that BIA voluntarily suspended the sale of WoL policies and RSPs in December 2004 and that a new senior management team is now in place at BIA.
Background
- The full text of the Final Notice issued by the FSA, which includes the background to the case, the relevant statutory provisions, regulatory requirements contravened, and the factors taken into account when setting the level of the fine, is available from the press office.
- 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; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness
