FSA bans broker for life assurance fraud

The FSA has banned Peter King and his Bournemouth-based firm New Forest Mortgage Company Ltd for knowingly submitting applications for fraudulent life assurance policies.

The regulator found that, since June 2007, King submitted applications for 39 fraudulent life assurance policies – 30 of which were in the names of applicants whose personal details were either wrong or who knew nothing about the applications – in order to benefit from commission payments in excess of £250,000.

King, the sole director of New Forest Mortgage Company, admitted that his plan was to submit the policies, claim the commission and use the money to settle substantial outstanding debts.

Margaret Cole, FSA director of enforcement, said: “Peter King acted dishonestly and without integrity and posed a risk to consumers and to confidence in the financial system as a whole. The FSA will not hesitate to take action against individuals or firms who break our rules and put customers at risk of fraud.”


FSA bans brokers over advice failings

The FSA has banned and publicly censured Tyne & Wear mortgage brokers Edward Allen and Ronald Allen for failings which exposed the customers of their firm to the risk of receiving an unsuitable mortgage.

The Allens, directors of Homeplan, failed to implement adequate systems and controls to ensure that the quality of mortgage advice to customers was up to the standard required and gather relevant customer information and ensure that recommendations given were suitable for the customer.

The regulator also found they had failed to monitor adequately Homeplan’s sales of mortgage contracts and produce adequate management information.

In addition Edward Allen, during an extended period of absence from the firm, did not ensure his roles for direction and oversight of the firm were delegated effectively.

Jonathan Phelan, head of retail enforcement at the FSA, said: “Both directors lacked the competence and capability needed to make sure their firm delivered good quality mortgage advice. The failings were particularly serious because the FSA first identified problems with the firm’s systems and controls during a visit in 2006 and no steps were taken to remedy the situation by the time of the FSA’s visit in 2008.

“The failings warranted a fine of £15,000 for each director but as they have provided verifiable evidence that they would suffer serious financial hardship if this financial penalty was imposed, we have issued a public censure instead.”

The trading permission of Homeplan has also been cancelled.

FSA backs HBOS

The FSA has made an official statement concerning its view of HBOS, which has been severely hit on the stock exchange over the past few days.

The statement reads: “Since the beginning of the current extreme difficulties in the financial markets, the Financial Services Authority has worked intensively with all major UK banks to ensure they have credible capital and liquidity plans. We are satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way.”

HBOS’s share price is currently down by over 40% this morning.

FSA censures mortgage broker

The FSA has censured Coventry-based mortgage broker, Mr Mohammed Habib, for failing to ensure his customers received suitable advice. Mr Habib, who traded as MAH Mortgage and Finance, must also pay for an independent review of his past business, compensate customers if appropriate, and must stop providing regulated mortgage advice.

The FSA found various failings which exposed customers to the risk of being recommended mortgages which were unsuitable or they could not afford.

It found between 31 October 2004 and 11 January 2008 that Mr Habib failed to assess, or record that he had assessed, his customers’ ability to pay the mortgage he recommended. He also could not provide proof that self-certification mortgages he recommended were appropriate for the customer.

Finally, he recommended lending into retirement without assessing the customer’s ability to pay after retirement and did not record why he had made that recommendation.

Jonathan Phelan, FSA head of retail enforcement, says: “Customers need to be confident that when they seek mortgage advice they can trust the recommendations made to them. We will continue to take disciplinary action against mortgage brokers who cannot demonstrate that the products they recommend are affordable.

“Where we have concerns about the quality of the mortgage advice given, we will continue to require mortgage brokers to undertake reviews of past business, often at considerable cost to them, to identify and remedy any unsuitable advice.”

The FSA censured Mr Habib as he was unable to pay the proposed financial penalty of £22,500.

As part of the disciplinary action, Mr Habib must also have an independent compliance consultant carry out a past review of his business to assess whether there has been any customer detriment and provide redress where appropriate. It will also withdraw all of his permissions, which will result in him no longer being able to conduct any regulated mortgage business.

The mortgage broker’s failings were found during a series of visits by the FSA’s Small Firms and Contact Division which focused in particular on self-certification mortgages and affordability of mortgage advice.

FSA slaps AFS with £63,000 fine

The FSA has fined Derbyshire mortgage broker Approved Financial Solutions Ltd (AFS) £63,000 after finding the firm failed to ensure it gave suitable advice, and did not communicate accurate information about mortgage charges to its customers.

Jonathan Phelan, head of retail enforcement at the FSA, said: “AFS’s failings were serious because its sales process enabled vulnerable customers to apply for mortgage contracts that they could not necessarily afford. In giving the mortgage advice, AFS also failed to provide customers with accurate information about the mortgage contracts. The firm’s customer base is largely sub-prime and many of them were seeking to remortgage to consolidate existing debts.

“Behind this poor compliance regime, we found that in all the sales files that we reviewed the customers had provided AFS with false income and employment information.”

The FSA found that personal and financial information provided by customers during the fact finding process was not disclosed on mortgage application forms submitted to lenders by AFS.

AFS did not have in place adequate systems to monitor the quality of advice provided by individual advisers.

Also, it did not provide its customers with adequate suitability letters and could not demonstrate from its client files the suitability of recommended mortgage contracts.

AFS did not disclose the correct procurement fees to customers. The procurement fee stated in mortgage offers was significantly higher than that disclosed to the customers.

In a number of cases self-certification mortgages were recommended despite the fact that a standard high street mortgage contract was clearly more suitable.

The regulator also noted that “behind a weak compliance regime, it appeared that many of AFS’ customers provided false income and employment information in support of their mortgage applications.”

AFS co-operated fully with the FSA throughout the investigation and has been proactive in taking steps to remedy identified deficiencies and improve the resourcing and quality of its compliance function.

From November 2007, AFS undertook a comprehensive programme of action to improve its compliance controls and sales procedures, and it has agreed to the appointment of a skilled person to report to the FSA on the effectiveness of its new arrangements. Even though AFS may have made unsuitable recommendations to customers, a past business review was not considered appropriate in this case because many of the customers had given false information about themselves.

AFS agreed to settle at an early stage of the FSA’s investigation and therefore qualified for a 30% discount under the FSA’s executive settlement procedure. Were it not for this reduction, the FSA would have imposed a financial penalty of £90,000

FSA bans trio for misusing client money

The FSA has banned three directors of a London-based insurance business, BPS Insure Limited, for failing to inform the FSA that BPS had a deficit of approximately £3 million in its client account and had misused client money.

Robert James, chief executive officer, and directors Stuart Lawton and Paul Adams all worked at BPS until it went into administration. Months before, during a routine visit, the FSA discovered that all three had continually failed to admit to the deficit from the time when they originally applied for authorisation until the date of the visit.

They had also used client money in January and February 2005 to pay BPS’ general expenses, further increasing the deficit.

The FSA established that all three men knew that they should have informed the regulator about the deficit and that they were misusing client money. No clients were directly affected, but there was a risk that the directors’ actions could have left clients without the cover they had paid for.

Jonathan Phelan, head of retail enforcement, said: “The directors of BPS acted recklessly and without integrity. They failed to ensure that clients’ money was adequately protected and undermined consumers’ confidence in the insurance sector.

“Senior managers must recognise their responsibilities – they are personally responsible and the FSA will take action against directors who fail to act appropriately when carrying out their regulatory functions.”

Robert James, Stuart Lawton and Paul Adams have all been banned from certain regulated financial services functions, including senior management, because they are not fit and proper to carry out those functions in terms of their honesty and integrity.

Consumers back financial ‘Weight Watchers’

Consumers want simplified and motivational choices when selecting savings products, like a financial version of ‘Weight Watchers’, according to research by Aegon. The provider is calling on the FSA to take account of what consumers want from financial advisers, as it moves ahead with its advice reform agenda with the RDR.

Its research, based on sessions with over 140 people, found consumers want advice helping them to understand financial products to be clearly separate from advice designed to help them buy the products. Other needs included what the consumer would gain from advice such as long-term planning and motivation.

One popular concept was the idea of a financial ‘Weight Watchers’ where people gain motivation and support from a group environment.

As a result of these findings, Aegon has identified five key concepts:

  • Financial guru: An independent expert giving holistic, ongoing and personalised financial advice, where products can be recommended and accessed, but selling is not the central point.
  • Financial coach: Aims to get people motivated for financial planning and keep them committed.
  • Drop-in centre: An initial problem-solving service for people with specific financial problems or needs.
  • Personal Shopper: Designed to simplify the choice available and provide products to suit the customer’s needs.
  • Financial Superstore: Aims to make buying easier for people with straightforward needs or who have a good understanding of what they want.

The ‘financial guru’ concept is broadly aligned with the RDR proposals for the future IFA, while the financial coach and personal shopper concepts are shaped by consumers’ retail experiences, says Aegon.

Francis McGee, head of corporate affairs at Aegon, says people are keen to take financial advice that helps them to overcome what they recognise as bad habits.

“They have identified models of advice that are not available within the currently regulatory framework. People looked at support services available in areas of their lives such as fitness and diet, and asked: “Why can’t financial services be more like that?”

He believes there are initial signs people might be more willing to pay for advice that is presented in the right way and designed for their lifestyle.

David Thomson, CII director of policy and public affairs, says: “Much of the current RDR debate has focused on regulatory reforms but just as important is ensuring the voice of the customer is heard.”

He says consumer behaviour is as important as studying demographics and social structures in understanding buying habits and patterns. It is a wake-up call for regulators and the industry alike.

“How customers behave and navigate through the often bewildering world of financial services is fundamental to the changes needed to help improve public trust and confidence.”

This is Aegon’s sixth Thinkpiece published by the Chartered Insurance Institute (CII) and can be found at: http://www.cii.co.uk/thinkpiece.