The Financial Services Authority (FSA) has taken action against three former directors of Black and White Group Limited (in liquidation) (Black and White), for numerous failings in relation to the sale of mortgages and payment protection insurance (PPI).
Christopher Ollerenshaw and Thomas Reeh, the chairman and chief executive respectively, challenged the decisions of the FSA in the Upper Tribunal (the Tribunal). The Tribunal agreed with the FSA that fines should be imposed but reduced these to £100,000 (£50,000 after financial hardship) for Ollerenshaw and a fine of £75,000 (reduced to £10,000 after financial hardship) for Reeh.
The FSA also asked for both individuals to be banned. The Tribunal imposed a ban on Ollerenshaw, but decided against this for Reeh in the light of mitigating circumstances.
Adrian Childs, the former Chief Operating Officer, has also been banned from holding a senior position in regulated financial services because he did not understand, or take steps to understand, how to perform his role. Childs would have been fined £50,000 but was declared bankrupt in 2009.
Black and White primarily advised on and arranged mortgage contracts, with many of its customers ‘sub-prime’ with low or impaired credit ratings. The firm had a panel of over 20 mortgage lenders and purported to consider all of them when advising on a mortgage. Instead, Ollerenshaw and Reeh encouraged sales advisers to sell a particular lender’s mortgages without considering whether the particular lender’s products were the best for customers. Black and White also had a £1 million loan facility from the particular lender. In 2007, when Black and White had difficulty making repayments on the £1 million loan it offset outstanding repayments on this loan against commissions due from the increased mortgage business with the particular lender.
Black and White also put undue pressure on advisers to sell PPI to its customers. Reeh imposed a target for sales without proper regard to the suitability of the product for its consumers. This was driven by an incentive scheme that meant greater commission could be earned by selling single premium policies over regular premium policies.
Tracey McDermott, the FSA’s director of enforcement and financial crime, said:
“The failings of Ollerenshaw, Reeh and Childs are serious. The way in which they ran B&W led to customers being treated unfairly. Both the incentive scheme and the culture at the firm encouraged staff to focus on sales rather than suitability. We expect firms to put customers at the heart of their business. Getting sales incentives right is critical to that. Firms that fail to do so can expect us to take action against them.”
The FSA has censured the firm for operating in a way that created a very high risk of unsuitable sales and customers not being treated fairly. Had the firm not been liquidated in 2008 the FSA would have fined it £2.2 million.
Background
- The Tribunal’s decision.
- The Final Notices for Black and White, Childs, Ollerenshaw and Reeh will be on the FSA website shortly.
- On 5 September the FSA published a report showing a clear link between mis-selling and poorly managed incentive schemes.
- Martin Wheatley’s speech on 5 September about incentive schemes.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
- The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013. The Financial Services Bill currently undergoing parliamentary scrutiny is expected to receive Royal Assent in late 2012 or early 2013, subject to the parliamentary timetable.
