Compliance News - 28 October 2011
Compliance News – 28th October 2011
CC:ME WEEK ENDED 28 OCTOBER 2011
The Financial Services Authority (FSA) has proposed new rules to make sure banks and building societies check customers are eligible to claim on insurance cover before selling them a packaged bank account.
Packaged accounts are current accounts bundled up with a range of insurance policies and other products such as ticket discounts. The FSA estimates that one in five of the UK adult population now has one of these accounts, and although some customers can get value from the package, others may not.
The consultation document proposes that banks and building societies selling insurance as part of a packaged account must:
- Check whether the customer is eligible to claim under each policy and share that information with them;
- Provide customers with an annual eligibility statement prompting them to check whether their circumstances have changed and whether the policies continue to meet their needs, and;
- If the sales adviser is recommending a packaged account they must establish whether each policy is suitable for the customer and alert them if some are not.
Sheila Nicoll, FSA director of policy stated:
“For some people packaged accounts represent good value and convenience. But in other cases customers may find that the insurance cover they have paid for is useless. We are concerned that it maybe too easy at the moment for firms to sell customers something they do not understand or need. We want to make sure that packaged accounts are only being sold to customers who have actively decided it is the right product for them.”
The FSA is also asking for more feedback on how to improve price transparency of packaged accounts. Firms buy insurance policies wholesale and offer them at discounted rates in the overall package. This makes it difficult for customers to compare and contrast the costs with standalone insurance products or other bank accounts.
Source: Financial Services Authority
The Financial Services Authority (FSA) has fined a major firm £5.95 million for systems and controls failings in relation to sales by its private bank of structured capital at risk products (SCARPs). SCARPs are complex financial products that provide income to customers but also expose them to the risk that they lose all or part of their initial capital.
Between January 2007 and December 2009 the firm’s UK customers invested over £1 billion in SCARPs. However, during that period there were a number of serious failings in the systems and controls in respect of those sales. These included:
- Inadequate systems and controls in relation to assessing customers’ attitudes to risk;
- Failing to take reasonable care to properly evidence the suitability of SCARPs for customers; and
- Failing to monitor staff effectively to ensure that they took reasonable care when giving advice.
Concerns were identified by the FSA during a supervisory visit to the firm, which subsequently led to the FSA commencing its enforcement investigation. The FSA has found that the firm had poor systems and controls in place and failed to maintain adequate records regarding its advice on these products. These failings amounted to a breach of Principle 3. As a result, customers were exposed to an unacceptable risk of being sold a SCARP that was unsuitable for them.
Since the discovery of these failings, the firm has made a significant number of changes to its advisory processes and has enhanced the systems and controls in place to ensure the suitability of its advice to its customers. The firm UK has also agreed to carry out a past business review, overseen by an independent third party, in relation to SCARP purchases during the period identified. If a customer is found to have been advised to purchase an unsuitable product, redress will be paid to the customer by the firm to ensure that they have not suffered financially as a result.
Source: Financial Services Authority
The ABI advises anyone who has suffered flood damage as a result of the heavy rain that has so far hit Northern Ireland, Wales and south-west England to contact their insurer as soon as possible.
Nick Starling, the ABI’s Director of General Insurance, said:
“Events like this are exactly why people take out insurance. Insurers plan for bad weather, and will have arrangements in place to minimise distress and inconvenience and help people recover as quickly as possible. Some, for example, will identify and contact their policyholders in areas affected to get any claim moving as quickly as possible”.
People who have suffered damage to their property or contents should:
People who have suffered damage to their property or contents should:
- Contact their home insurer as soon as possible. Most will have 24-hour emergency helplines, which can give advice on next steps and arrange repairs as quickly as possible.
- If necessary, arrange temporary emergency repairs to stop any damage getting worse. Tell your insurer and keep any receipts, as this will form part of your claim.
- Don’t be in a rush to throw away damaged items, unless they are a danger to health, as these may be able to be repaired or restored. Your insurer will advise.
Six weeks on from the publication of its final report, Angela Knight has reminded policy makers that the ICB is a body that recommends, not a body that decides.
The BBA Chief Executive reviews ICB recommendations in a blog posted on the BBA website. Her comments focus on the retail ring-fence and an increase in loss-absorbing capital and emphasise the real cost of these proposals to the economy, to banks and to customers.
Angela Knight writes:
‘I sincerely hope that the investors will be up for the ICB’s proposals. But if they are, the necessary spends will be big. Run up all the associated price tags and the fixed cost of operating a bank much higher. As every businessman and woman knows, you can’t increase the fixed cost of commerce without affecting the price of the goods and services the business offers.’
Click below to read the blog for yourself.
Source: British Bankers Association
Insurance disputes involving claims for unemployment or sickness benefit
The FOS has stated
“A number of different insurance products offer benefits in the event of an accident, sickness or unemployment – and we see a significant number of complaints involving claims made under policies of this type. Sometimes, the consumer is unhappy because of delays in processing and paying a claim. But more often, in the cases brought to us, the insurer has turned down a claim for reasons that the consumer thinks unfair or unreasonable.”
Consumers who have claimed under policies of this type will generally be experiencing difficult circumstances, so a considerable amount of sensitivity is called for when dealing with these issues.
An example of a case illustrating the FOS approach in some of the complaints they have dealt with recently is available via the link below. As always, the outcome will depend on the specific details of each individual case.
Source: Financial Ombudsman Service
