THE FINANCIAL CONDUCT AUTHORITY has issued its largest ever retail fine of £30.6m to broker Homeserve following “serious, systemic and long running failings” across key aspects of its business, sister title Post reports.
According to the FCA, during the period January 2005 to October 2011 Homeserve mis-sold insurance policies, failed to investigate complaints adequately and was insufficiently engaged with compliance matters.
In addition, senior management were reluctant to address risks to customers if there was a cost implication involved, the watchdog said.
Following the rapid expansion of its business, the insurance intermediary, which sells home emergency and repairs insurance cover, “developed a profit driven culture where profit targets were met by taking advantage of existing customers in pursuit of sales,” the FCA added.
Homeserve has accepted that it needed to restore its customer focus and move away from a culture of putting profits before treating customers fairly. To date, Homeserve has paid approximately £12.9m to affected customers in redress and is expected to pay around £16.8m in total.
The broker agreed to settle at an early stage of the investigation and therefore qualified for a 30% discount under the FCA’s executive settlement procedures. Were it not for this discount the fine would have been £43 782 058.
Commenting on the fine, Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “This is a serious case, one that has warranted our largest retail conduct fine and generated a sizeable bill for consumer redress. Homeserve is another example of a firm that has acted without proper regard for its customers over a long period of time.
She continued: “Homeserve promises to provide customers with peace of mind when things go wrong. In fact the firm’s culture, controls and remuneration structures meant that staff were focussed on quantity not quality and there were customers that paid the price for that.”
“Firms must put the interests of customers at the heart of their business if we are to restore trust and confidence in financial services. True change in the culture within the financial services industry will only be achieved when firms and their management accept and deliver on their responsibility to ensure that customers are treated fairly,” he added.
The FCA found that Homeserve breached Principles 3, 6 and 7 of the FCA’s Principles of Business. It breached Principle 3 by failing to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
Commenting on the magnitude of the fine, Simon Morris, partner at law firm CMS, said: “This astonishing fine shows how seriously the FCA views misconduct impacting retail investors.
“The real interest, though, lies in the small print – the £30m fine is based on 10% of turnover, the figure used for medium-serious breaches. The figure is 20% for really serious breaches, which indicates how high FCA fines can and doubtless will be in the future.”
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