The FSA has fined and banned three former directors of the liquidated Black and White Group for numerous failings in relation to the sale of mortgages and payment protection insurance.
The FSA has censured the firm for operating in a way that created a very high risk of unsuitable sales and for failing to treat customers fairly. Had the firm not been liquidated in 2008 the FSA would have fined it £2.2m.
Chairman Christopher Ollerenshaw and chief executive Thomas Reeh challenged the decisions of the FSA in the Upper Tribunal.
The Tribunal agreed with the FSA that Ollerenshaw should be banned and fined £100,000, although this was subsequently reduced to £50,000 on grounds of financial hardship.
However, while the Tribunal agreed that Reeh should be fined £75,000 – which was reduced to £10,000 once financial hardship was taken into account – it judged that he should not be banned in the light of mitigating circumstances.
Chief operating officer Adrian Childs 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 £1m loan facility from the particular lender. In 2007, when Black and White had difficulty making repayments on the £1m 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.
The FSA’s director of enforcement and financial crime Tracey McDermott says: “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.”