The failures were identified following a visit by the FSA. The firm is now voluntarily reviewing all endowment complaints that were rejected between January 2000 and 10 February 2003. Independent accountants have been appointed by Friends Provident to oversee this process.
Friends Provident received 21,788 mortgage endowment complaints between March 2000, when its dedicated complaints handling team was established, and February 2003, when its defective procedures were replaced. Approximately 5,500 customers whose complaints were rejected were exposed to the risk that their complaints were in fact genuine and deserving of redress, but were rejected because the procedures were inherently not fair and were biased against customers.
The firm's failures persisted from October 2001 until February 2003. These failures demand a significant financial penalty as they arose from a systemic weakness in the firm's procedures and exposed a large number of customers to potential loss.
The FSA has also placed great emphasis on the importance of adequate complaints handling systems. To reinforce this point the regulator has, since 1999, issued substantial guidance and updates on mortgage endowment complaints handling, including detailed guidance in a letter from John Tiner, then Managing Director of the FSA, in April 2002.
Specific failings in the firm's procedures and its handling of mortgage endowment complaints included:
- a readiness to dismiss consumers' evidence when it was not supported by documentary proof;
- an assumption that a pre-existing endowment, or other investment held at the time of sale, was sufficient evidence that the customer had an understanding of the risk associated with the product; and
- an assumption that if a consumer failed to exercise their cancellation rights, having received all the post sale disclosure information, this indicated that they were satisfied with the advice and the product at the time of sale.
Andrew Procter, Director of Enforcement, said:
“Firms should be under no illusion as to the standards expected in relation to complaints handling. We will not tolerate poor systems which expose consumers to the risk that genuine complaints, which may deserve compensation, are rejected unfairly.
"Friends Provident and its senior management failed to respond in an effective and timely manner to FSA guidance and to correct problems found in its systems when it had reasonable opportunity to do so. It is a firm's responsibility to ensure that its practices are fair and we will continue to monitor firms' complaints handling. Firms found to be failing their customers face regulatory action."
These failings have, however, been mitigated significantly by the co-operation demonstrated by Friends Provident and the remedial action taken as a result of the FSA's action, including:
- committing to the adoption of a new approach to mortgage endowment complaints, which provided more favorable treatment to customers;
- setting up a separate group to review past mortgage endowment complaints in order to ensure customers were treated fairly;
- seeking external support and guidance in bringing about the required changes by engaging an independent firm of accountants to review existing procedures, design new written procedures, design and deliver a training programme and complete quality assurance work on the new mortgage endowment complaints-handling system;
These procedures should ensure that mortgage endowment complainants will be offered redress where appropriate and that past mistakes are not repeated.