On 15 December 2010 the Financial Services Authority (FSA) issued a final notice informing Scottish Equitable plc of the £2.8 million financial penalty levied on it for breaches of FSA Principle 3 that occurred between 2002 and 2010.
Principle 3 requires that a firm takes reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. The penalty has been levied due to Scottish Equitable’s systemic failures in administering its policies, leading to customer detriment. In 2009 the company reported to the FSA over 300 such failures, including:
- not issuing approximately 238,000 policyholder documents;
- incorrectly calculating Guaranteed Minimum Pension payments and future benefits of 744 customers, resulting in a customer detriment of around £6 -7 million;
- failing to identify and resolve systemic errors in calculating rebates to charges on pension policies for 25,000 policies, resulting in a customer detriment of around £8.5 million;
- failing to match the Department of Work and Pensions contributions to personal pensions for around 2,500 customers, resulting in a customer detriment in the region of £6.7 million; and
- failing to trace around 200,000 policyholders who had moved without informing Scottish Equitable of their new address.
Scottish Equitable is currently in the process of paying customer redress of around £60 million, of which £30 million is intended to be paid out by the end of 2010. The FSA has taken into account the substantial resources and time committed by Scottish Equitable to rectifying the issues.
Scottish Equitable has also qualified for a 30% discount under the FSA’s settlement discount scheme, intended to reward firms and individuals for early settlement. Despite this, the penalty remains substantial and will act, as the FSA intends, as a deterrent to others committing such breaches.
The FSA final notice can be found here.
