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.”