The PIA has hit Royal Bank of Scotland subsidiary Royal Scot tish Assurance with a £2m fine – its biggest to date – for using the wrong calculation for mortgage endowment premiums during the early 1990s.
It also faces paying a further £50m in compensation to make up shortfalls on policies sold during this time.
The huge fine is over “serious deficiencies” in RSA's flexible mortgage plan sold between October 1990 and December 1994, which aff ected up to 30,000 people.
But although RSA chairman Benny Higgins “apologises unreservedly” to pol icy holders for the mistake, RSA is taking legal action against Scottish Equitable which provided the endowment plan.
ScotEq denies any responsibility for the miscalculations and says it is “vigorously def ending” the action because it only produced the product RSA requested it to provide.
Incorrect pricing meant premiums were set at a level which the PIA says “would not repay the outstanding mortgage debt at the policy's mat urity on the basis of growth assumptions used by RSA”.
The fine equals the £2m Imro fine on Morgan Grenfell over the Peter Young scandal.
Despite the legal wrangl ing, RSA has culled its man age ment team since the mis cal culations came to its att en tion in 1997 although it declined to comment on the iden tity and position of those involved.
Higgins says: “While we fully accept that, as the regulated entity, RSA is accountable to both customers and the regulator, we have raised an action for damages against Scottish Equitable who provided the product to RSA.”
FSA director of enforcement Dan Waters says: “The fine underlines our determination to get compensation paid to those consumers that have lost out, in this case as a result of a fundamental flaw in a particular product.”