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FSA fines Direct Line and Churchill £2.2m

The FSA has fined Direct Line Insurance and Churchill Insurance Company Limited £2.2m for failing to prevent files requested by the regulator from being “improperly altered”.  

The regulator says during the collation of 50 complaint files requested by the FSA for review, 27 were altered improperly before they were submitted to the regulator. However the FSA say most of the changes were minor and none resulted in any customer detriment.

While the fine relates specifically to failings by Direct Line and Churchill, since the breach occurred the businesses have been transferred to UK Insurance, owned by the Royal Bank of Scotland Group. RBS is therefore responsible for paying the fine.

In May 2009, the FSA identified a number of areas where improvements were needed. In February 2010 the FSA informed the firms it would undertake a review of closed complaint files.

In preparation for this review the firms asked a major accountancy firm to do a sample review; 28 per cent of the 110 files reviewed failed the assessment.

In March 2010, the firms carried out their own internal review of closed complaint files with a view to ensuring that files were complete and to ensure that there had been no customer detriment.  Prior to this, the firm’s customer relations management carried out two conference calls during which they told staff about the 28 per cent failure in the sample review and that this was unacceptable.  

Management also told staff enforcement action was likely, and that staff should consider “what they might do to ensure files were in a state that would pass FSA inspection”. Staff were encouraged to review their closed complaint files where necessary.

Staff were also told they would face disciplinary investigation if they were found not to be working to the required standard.

The FSA received 50 files for review in April 2010.  At around the same time, the FSA received information that some of those files may have been altered or created and so, in June 2010, it visited the firms’ offices at short notice.  Following a detailed internal investigation, it emerged 27 of the 50 files had been altered before they were sent to the FSA, and seven internal documents were found to contain staff signatures forged by one member of staff.  

FSA acting director of enforcement and financial crime Tracey McDermott says: “This is a serious breach. The firms’ attempt to ensure that complete files were provided to the FSA backfired. The firms failed to give clear instructions resulting in staff making inappropriate alterations with one individual even forging the signatures of colleagues.  The firms’ management did not know what changes had been made or when.

“The significant penalty is intended to underscore to firms that it is of critical importance that material provided to the FSA must reflect the picture as it is – not as they might like it to be.”

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Comments

There are 16 comments at the moment, we would love to hear your opinion too.

  1. Direct line

    we are not on fine comparision sites……….

  2. Grey haired broker 18th January 2012 at 11:15 am

    Churchill re-visiting files and changing them….oh yes!

    Yeah right, he told me he was head of compliance.

  3. Glad the FSA have actively identified problems, however, 80% of the fine imposed on RBS will be picked up by us the taxpayers – the very ones the FSA is supposedly trying to protect!

  4. And if a ‘small’ firm had altered files in this way what would have happened?
    Fine – possibly.
    Directors or Partners – Banned
    Business – Authorisations revoked
    Result – business ceases

    A £2.2m fine is just another business expense for these companies and, as we have seen so many times before, unlikely to produce the cultural change the regulator says it is looking for.

  5. £1.6 million from tax payer to FSA to oil the golden payroll machine! Where is the Govt to call to account?

  6. Hang on, if the complaint files were closed and the FSA told the firms in Feb 2010 they would review them for completeness and detriment, what did the FSA expect the staff on the ground to do at the behest of management eight weeks later…….well exactly what happened ‘tidy them up’. . I wonder who told them they had been altered. Sounds like an FSA sting operation to me.

  7. Redress the balance... 18th January 2012 at 12:59 pm

    Just to add to the above to give a slightly more balanced view point on JH’s comment the extent of this in practice does not just rest with a fine and then its BAU, no lessons learnt.

    In my previous experience a firm of this size will be relationship managed and under constant scrutiny by supervisors who will look to see changes going forwards – a fine is not and end, but often a beginning, but these articles rarely highlight that.

    So the fine (and the reasons for which is was imposed) are likely to result in change internally.

  8. @Redress the balance

    The points J H made are correct
    You will never convince IFas’ otherwise, as we have the proof before our eyes.
    If we mess up, we pay.
    If the banks mess up the taxpayer pays.
    Regulation is a joke.

  9. £2.17 million sounds big, but it is a pin prick against the volume of business RBS writes. They will simply write it off against what they have saved by not doing the job correctly in the first place.

    What happened to the personal integrity standards expected of all who work in financial services?

    Whoever did this at the insurers should be declared not fit and proper and dismissed for such a gross disciplinary breach.

    A smaller firm would have been put out of business by the FSA for a lot less than this!

  10. P.S. “..the FSA say most of the changes were minor and none resulted in any customer detriment.” So that makes forging signatures and altering files a minor offence?

  11. The FSA doesn’t appear to have taken action against any approved persons because they preumably were too remote from the situation to pin it to.; That doesn’t mean the same as “no-one got fired” or “that person won’t work in the industry again”

  12. @Adam Smith
    Dream on mate.
    You must work in the same dpartment as Redress The Balance.

  13. Innocent Bystander 18th January 2012 at 6:32 pm

    I think that redress the balance has got it more right than wrong as has Adam Smith.

    The majority of IFA’s will not see the intrusive approach now at work with large firms (which may not have been there in the past) and they certainly won’t publicise that individual(s) have been sacked with the result that anyone getting a reference will see why they were sacked. Any firm wanting to employ them after that would need their heads examined. There may be some senior managers who may not be approved persons who do not keep their jobs and may then not get approved anywhere else.

    There may also be other knock on effects that may come out at a later date.

    You can’t have it both ways – there is a lot of screaming about where are the fines and actions against the big boys – so can’t then complain that the money to pay the fime is ours!

  14. Isn’t forgery a crime? Has the FSA sent the files to the Director of Public Prosecutions? If not, why not?

  15. £2.2M? The FSA is obviously looking to pay for their NewYears party.

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