L&G to fight mis-selling penalty

Insurance firm, Legal & General said yesterday it is to challenge a ruling against it by the Financial Services Authority on the mis-selling of endowment policies. It is a move that could open the flood gates for other institutions to launch similar appeals.

L&G, the largest company to challenge the FSA in this way, said it was appealing against both the regulator's decision and the process it used in examining "a small proportion" of mortgage endowment policies sold between 1996 and 1999.

Thousands of people have taken complaints about mis-sold endowments by a number of companies to the financial ombudsman and won compensation. There are thousands more claims still in the pipeline and the ombudsman is predicting that by the end of December almost 100,000 people will have lodged claims this year alone.

But, if L&G's latest move prompts more companies to challenge FSA rulings on the issue, it could cast doubt on future compensation claims.

Financial advisers are cautioning people with outstanding claims not to worry unduly. However, the professionals are concerned that future compensation claims could be at risk if other companies decide to appeal.

Phillipa Gee, investment strategist at the IFA Torquil Clark, said: "If other companies were to take this sort of extreme measure it could impact on some or maybe all of the claims for compensation in the system - maybe hundreds of thousands of people.

"I don't think Legal & General would go through this formal legal process if it weren't confident that it would win. It would be time-consuming and expensive."

L&G has taken its case to the financial services and markets tribunal, the independent appeals body set up under the Financial Services and Markets Act 2000 to consider challenges to FSA decisions.

The tribunal hearings, which work in much the same way as employment tribunal proceedings, are held in public and are seen as a last resort once the FSA's appeals process has been exhausted.

L&G has been arguing its case to the FSA through its established process and was issued with a "decision notice" by the regulator last month. The notice is the final stage in the FSA's official appeals process and gives complainant 28 days to respond.

An L&G spokesman said yesterday the company had thought carefully about what to do and decided that "the next stage would be the independent tribunal".

In a statement, the company said: "Legal & General, after careful consideration and on legal advice, disagrees with both the decision reached by the FSA and the process by which it was reached.

Accordingly, Legal & General has taken the first opportunity allowed by the FSA's process too have the matter heard independently."