L&G fine excessive, tribunal rules

A tribunal today ruled that the Financial Services Authority's fine on Legal & General for alleged mis-selling of mortgage endowment policies was excessive.

The financial services & markets tribunal said it had decided the FSA should cut the ?1.1m penalty levied on L&G for the alleged mis-sales in the late 1990s.

The tribunal said L&G had breached rules that caused or contributed to mis-sales, although it cleared the group of widespread mis-selling. It also found that the FSA made mistakes in its approach to the case and reached unjustified conclusions.

The tribunal said the revised level of the penalty would be determined at a future hearing. But it added: "Our provisional view is that there should be a reduction in the penalty imposed by the FSA."

The FSA had claimed that L&G's procedures for selling its Flexible Mortgage Plans to 41,000 "low risk" customers between 1997 and 1999 were defective. L&G was alleged to have sold the endowments without explaining to customers the possibility that the investment may not repay the capital element of the mortgage for which it was intended.

The FSA had argued that the faults led to actual and significant mis-selling of policies.

However, L&G denied the allegations and referred the case to the tribunal. The insurer said it did not accept that its procedures were defective, nor that any mis-selling resulted from them.

The tribunal upheld the FSA's case that L&G's sales procedures were faulty and that they "will have caused or contributed to mis-sales".

However, the tribunal criticised the authority's use of a sample of cases to demonstrate general mis-selling, as well as aspects of its enforcement procedures.

The FSA said it accepted the tribunal's criticisms and would try to avoid such problems occurring in future.

The authority said in a statement: "The FSA will give careful consideration to the tribunal's observations on its handling of this case and will look to identify improvements to its own procedures as a result."

L&G's group chief executive David Prosser said he was pleased that the independent tribunal had heard the case and that it had agreed that the FSA reached unjustified conclusions.

"L&G is committed to the fair treatment of all its customers," Mr Prosser said.

Philip Rubens, head of regulatory enforcement at law firm Finers Stephens Innocent, said the fine was likely to be reduced to about ?100,000 or less.

However, he said the fact that L&G had lost the case meant that other firms that disagreed with FSA decisions would be reluctant to appeal them.

Mr Rubens estimated that L&G would have spent between ?3m and ?5m in legal costs in taking the case to the tribunal.

"Notwithstanding the fact that the fine is going to be reduced, L&G will still be massively out of pocket," he said.