During the collation of 50 complaint files requested by the FSA for review, 27 were altered improperly before they were submitted because the firms failed to act with due skill, care and diligence.
The majority of the alterations were minor in nature and none of the changes resulted in any customer detriment.
While the fine relates specifically to failings by Direct Line and Churchill, since the breach occurred the relevant business and liabilities of the firms have been transferred to UK Insurance Limited.
UKI, which is owned by the Royal Bank of Scotland Group, is therefore responsible for paying the fine.
In May 2009, as part of its ongoing supervision of the firms’ complaints handling capabilities the FSA identified a number of areas where improvements were needed.
Having continued to monitor their progress, in February 2010 the FSA informed the firms that it would undertake a review of closed complaint files to further assess the effectiveness.
In preparation for this review the firms asked a major accountancy firm to do a sample review; 28% of the 110 files reviewed failed the assessment.
In response to this, in March 2010, the firms initiated their own internal review of closed complaint files with a view to ensuring that files were complete and to ensure that there had been no customer detriment.
Prior to this, the firm’s customer relations management carried out two conference calls during which they told staff about the 28% failure in the sample review and that this was unacceptable.
During the call, management also said:
-A similar failure during the FSA’s review, which was beginning soon, could lead to enforcement action for the firm;
-Staff should consider what they might do to ensure that files were in a state that would pass FSA inspection and if that required staff to review their closed complaint files, they were encouraged to do so;
-If staff took immediate action and changed things now, this would be an extremely positive result;
-Staff found not to be operating to the required standard would face disciplinary investigation; and
-Staff were reminded that the most important thing was to get the right outcome for customers.
In April 2010, the FSA received 50 files for review. At around the same time, the FSA received information that some of those files may have been altered or created and so, in June 2010, it visited the Firms’ offices at short notice.
Following a detailed internal investigation conducted by the firms, it was revealed that 27 of the 50 files had been altered before they were sent to the FSA, and seven internal documents were found to contain staff signatures forged by one member of staff.
Tracey McDermott, the FSA’s acting director of enforcement and financial crime, says: “This is a serious breach. The Firms’ attempt to ensure that complete files were provided to the FSA backfired. The firms failed to give clear instructions resulting in staff making inappropriate alterations with one individual even forging the signatures of colleagues. The Firms’ management did not know what changes had been made or when.
“In this case, the alterations did not impact on the FSA’s ability to do our job. The significant penalty is however intended to underscore to firms that it is of critical importance that material provided to the FSA must reflect the picture as it is – not as they might like it to be.”
The firms agreed to settle the case at an early stage and therefore qualified for a 30% discount. Without the reduction the FSA would have fined them £3.1m.