The Financial Services Authority has fined Abbey Life Assurance Company Limited £1m for mortgage endowment mis-selling and other deficiencies in its compliance procedures and controls between 1995 and 1999. Between 42,000 and 46,000 mortgage endowment and 3,000 to 4,000 other customers may be due compensation currently estimated to be between £120 million and £160 million.

Abbey Life closed to new business in February 2000 and embarked on a remedial programme intended to identify all areas of potential disadvantage to consumers which might have arisen as a result of its compliance weaknesses.

The size of the fine reflects the serious nature of Abbey Life’s failings. The penalty would, however, have been much higher were it not for the extensive and proactive remedial action taken by Abbey Life, the acceptance of responsibility by its senior management and the degree of openness and co-operation it has shown to the regulator in seeking to resolve the issues identified.

Carol Sergeant, Managing Director for Regulatory Processes and Risk at the FSA, said:

“Abbey Life has voluntarily agreed to extend its review of mortgage endowment sales back to 1988, at considerable cost to itself. Senior management has fully accepted its responsibilities to customers and the review now being undertaken should ensure that they receive appropriate redress. Without this approach by Abbey Life, the penalty imposed would have been significantly greater.”

Abbey Life’s breaches are particularly serious due to the following factors:

• They occurred over an extended period of time. Weaknesses in Abbey Life’s systems for monitoring its advisers, the standards of its records, the standards of its “Reason Why” letters as well as, in a limited number of cases, the suitability of sales, were identified by PIA in three consecutive visits in 1995, 1997 and 1999 and by Group Compliance in 1997 and 1999. Abbey Life failed to take adequate steps to resolve the issues identified in a timely and effective fashion.
   
• There was a systemic failure in Abbey Life’s procedures relating to the sale of mortgage endowments. Specifically Abbey Life’s procedures failed to ensure that recommendations to purchase mortgage endowments were made only to customers who had an appropriate attitude to risk. As a result Abbey’s advisers made widespread unsuitable recommendations of mortgage endowments to retail consumers.
   
• The size and nature of Abbey Life (which had over 1,500 advisers) meant that these failures exposed a large number of consumers to potential loss.

Abbey Life co-operated with PIA and subsequently the FSA, in undertaking a sample review of mortgage endowment sales focussing on the assessment of attitude to risk. Abbey Life immediately accepted the results of the sample review and proactively initiated a comprehensive review of all mortgage endowment sales back to 29 April 1988 (when regulation began under the Financial Services Act 1988). This will ensure that mortgage endowment customers who may have lost out as a result of Abbey Life’s failures will be compensated.

The approach Abbey Life has adopted in dealing with these issues has demonstrated a high regard for the priority of its consumers'' interests. Abbey Life has fully recognised its moral, as well as legal and regulatory obligations, to its consumers. Where there has been any doubt or confusion about whether consumers may have been mis-sold, Abbey Life has resolved this in favour of the customer.

Abbey Life has been open and co-operative with the FSA. Its approach has ensured that consumers will receive redress in a timely and effective fashion.

In the absence of such mitigating factors, and, in particular, without the level of co-operation and proactivity demonstrated in resolving the issues identified, the penalty imposed would have been very significantly greater.