Scottish Amicable fined ?750,000

Life assurer Scottish Amicable was today fined ?750,000 by the City watchdog for mis-selling endowment mortgages.

The Financial Services Authority (FSA) said the size of the fine reflected the "serious nature" of the firm's failings, including not acting adequately on guidance issued by the regulator in December 1999, which reiterated the standards that must be met when the policies are sold.

"The failings arose because advisers did not place appropriate emphasis on identifying whether a customer was prepared to take the risk that their mortgage might not be repaid at the end of the term," the FSA said in a statement. "This resulted in policies being mis-sold."

The fine covers policies sold between January and December 2000. Following a visit by the regulator in January 2001, Scottish Amicable started a review of 33,781 policies sold between January 1999 and February 2001, and has set aside ?11m for compensation.

It has also agreed to pay compensation to people who were sold endowment mortgages by an appointed representative between April 29, 1988, and December 31, 1998, where appropriate.

The fine is the fourth largest issued by the FSA since it took on its full powers in December 2001, and the third largest fine involving endowments, after Royal Scottish Assurance was fined ?2m for mis-pricing the policies, and Abbey Life was fined ?1m for mis-selling them.

Under pressure to protect consumers' interests amid the worst stock market slump in 30 years, the FSA has made it a priority to win compensation for customers who were mis-sold endowment mortgages.

Endowment policies, in which funds are invested with a view to repaying the loan at the end of the mortgage term - usually 25 years - were highly popular during the 1980s housing market boom.

Endowments were lucrative for firms selling them, but this depended on the return from their underlying investments. Their inherent risk has been exposed by the stock market rout.

Market conditions are less benign to endowment mortgages than during the 1980s, when stock markets boomed and interest rates were far higher than at present.

Endowments usually have large holdings in shares, and a stock market slump coupled with low interest rates has wrecked the investment assumptions made on endowment mortgages 20 years ago.