Abbey Life fined record amount for mis-selling mortgages

The financial services authority today fined life insurance firm Abbey Life a record ?1m for mis-selling endowment mortgages between 1995 and 1999.

Abbey Life could also be liable to pay compensation of up to ?160m to as many as 50,000 customers, the financial regulator said.

The regulator said the size of the fine reflected the serious nature of Abbey Life's failure to assess how much risk customers were willing to take, and the fact that it did not monitor staff.

However, the FSA said that the penalty would have been much higher if Abbey Life, now part of Lloyds TSB, had not taken extensive action to address the problem.

Abbey Life closed to new business in February 2000 and set out to identify all areas in which customers may have lost out as a result of the misselling, going as far back as 1988.

Lloyds TSB said today it had set aside ?165m to cover redress payments to policyholders. The company took a majority shareholding in Abbey Life in 1988 and fully integrated it into the group in 1996.

The FSA said that between 42,000 and 46,000 endowment mortgage holders could be in line for compensation, as well as up to 4,000 other customers who were sold endowment policies.

Carol Sergeant, managing director for regulatory process and risk at the FSA, said: "The failings in this case are serious. Weakness in Abbey Life's internal controls occurred over an extended period of time and exposed large numbers of consumers, particularly those who purchased mortgage endowments, to the risk of loss.

"Abbey Life has voluntarily agreed to extend its review of mortgage endowment sales back to 1988, at considerable cost to itself, and has also taken a wide-ranging review of other products. Senior management has fully accepted its responsibilities to customers and the review now being undertaken should ensure that they receive appropriate redress," she added.

It said Abbey Life's breaches were particularly serious because they occurred over an extended period of time.

The FSA said weaknesses in Abbey's systems for monitoring advisers, keeping records, and explaining to consumers why an endowment was suitable for them had been identified by the personal investment authority in 1995, 1997 and 1999, but Abbey Life failed to take steps to resolve the problems.

A Lloyds TSB spokeswoman said: "At the time when most of these problems arose, Abbey Life was a self-contained unit." She added that 74% of the policies under review were sold between 1988 and 1993, and said the group had voluntarily extended the scope of its inquiry to go beyond the 1995 to 1999 period the FSA had investigated.