HSBC loses out at FOS over income protection advice

For many years, a number of people within the industry suggested it was not possible to mis-sell an insurance contract. However, we all know all too well that payment protection insurance (PPI) has become the most mis-sold product in history, and that billions of pounds in compensation has been paid to disadvantaged customers.

A recent ruling from the Financial Ombudsman Service (FOS) also illustrates how it is possible to disadvantage customers when selling other forms of insurance. The case of Ms L concerns short-term income protection, which many people see as a possible substitute for PPI.

Ms L was advised to take out the policy by an HSBC adviser back in 2009. Unlike PPI, the policy did not provide unemployment cover, however it did promise to pay 12 months income (after a four-week deferred period) if the client was unable to work due to accident or sickness.

Seven years later, Ms L complained to the bank that it was inappropriate to have advised her to take out the policy, given that she was entitled to six months full pay from her employer in the event of sickness. When HSBC rejected the complaint, Ms L referred the matter to the Financial Ombudsman Service (FOS).

When presenting its case to the FOS, HSBC argued that the policy was still suitable, as were she to have been off sick for more than six months, the insurance would have provided valuable extra protection.

However, FOS ombudsman David Poley’s judgement suggested that the adviser had never enquired about what sickness benefits Ms L enjoyed at work. There is reference in the adjudication to a chart in the client’s suitability report which suggests that she did not have any sick pay arrangement at work, and to other information in the suitability report which suggested she had four weeks of full sickness benefit from her employer followed by over two years of half benefit. To complicate the situation further, HSBC claimed to have been told by Ms L during the advice process that she had one month’s sick pay from work, but during the FOS investigations she denied having said this.

Mr Poley ruled:

“I can’t see that the adviser ever asked Ms L about her employer’s sickness benefit.

“There is no reference to it in the fact find. I would have expected that this would be of paramount important in deciding what type and level of benefit she needed.

“My conclusion is that the adviser didn’t bother to find out this information.

“While recognising that the policy would have paid full benefit to Miss L, the fact is that it was unnecessary for any incapacity which lasted for less than six months because she would have no need for a replacement income during this period. The only need it met was therefore for periods of incapacity of between six and twelve months because this was the only period for which it would have been compensating Miss L for a loss of income.

“I think the adviser should have found out about Miss L’s sickness benefit from her employer before deciding what policy to recommend. If he had done so, I doubt that he would still have chosen to recommend this policy.

“I consider that the adviser’s failure to take into account Ms L’s sickness benefit from her employer means this policy was mis-sold.”

HSBC was ordered to refund all premiums paid by Ms L, plus interest at 8%. The bank attempted to argue that it should only be required to refund the difference between the amount she paid in premiums and the amount that would have been paid under an alternative policy, but Mr Poley rejected this assertion, commenting that HSBC had failed to demonstrate what such an “alternative policy” would have looked like.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


Credit permission application declined over quality of documentation and threshold conditions issues

The Financial Conduct Authority (FCA) has declined a London-based firm’s application for permission to operate as a lender. The regulator had concerns over whether the firm was actually based in the UK, and over the accuracy of certain information supplied by the firm.

Although it only made an application for consumer credit permissions in late 2015, the firm has actually been registered with the FCA since October 2013, for the purposes of the Money Laundering Regulations 2007. A London address was provided as the firm’s principal place of business at that time, but checks made by the FCA show that the firm has in fact not operated from that address since August 2014 at the latest.

The application for lending permissions gives another London address as the principal place of business, however the FCA claims that this is not the firm’s operational centre, as the location is only occupied by an agent who provides mail forwarding services for the firm.

The lending permissions application also nominated an individual to act as director, and to carry out controlled functions. The application gave a London address for this individual and said that he had been resident there since 2009. However, this is inconsistent with information held at Companies House, which suggests that the person is resident in Malaysia. A letter sent to his supposed London address in August 2017 was returned undelivered.

Despite claiming that it had various documents, including the regulatory business plan, opening and forecast balance sheets, compliance monitoring plan and arrears procedures, ready for submission to the FCA, the firm failed to reply to requests for this information to be provided. When the documentation was finally received, the regulator found it to be “simplistic [and] undeveloped”, and added that it “contained little information about how the firm is structured to comply with the requirements of SYSC and CONC.”

Later communications from the FCA to the firm also failed to produce a response, including requests for the regulator to visit the firm’s offices.

Summarising the reasons for its refusal, the FCA says in a Final Notice:

“The Authority considers that [the firm] does not maintain any physical presence in the UK and, accordingly, that it does not satisfy the requirement of threshold condition 2B that its head office be located in the UK.”

“[The firm] appears to have submitted inaccurate information to the Authority concerning its principal place of business and the residential address of its director and/or has failed to update information previously provided.

[The firm] has been unable to respond to straightforward enquiries as to its business operations and requests for documents in a timely manner and, when submitted, this information provided has been incomplete and of poor quality.

[The firm] appears to have no physical presence in the UK. Accordingly, the Authority is concerned that it would not be able to obtain (on an ongoing basis) sufficient information about [the firm]’s activities.

As a result, the Authority considers that it does not satisfy the requirement of threshold condition 2C, that it be capable of being effectively supervised by the Authority.

The Authority considers that [the firm] has not demonstrated that it has sufficient resources, and is ready, willing and organised to comply with its regulatory requirements. Accordingly, the Authority considers that it does not satisfy the requirement of threshold condition 2D, that its resources are appropriate in relation to the regulated activities that it seeks to carry on.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


Jail sentence for individual who acted as illegal lender

A 64-year old man from Essex has been sentenced to three and a half years imprisonment for acting as an illegal money lender.

He was found guilty at Southwark Crown Court after the court heard that he engaged in money lending between 2012 and 2016 despite not being authorised by either the Office of Fair Trading (which was the consumer credit regulator up until 2014), or the Financial Conduct Authority (FCA).

The individual granted approximately £1 million of new loans over the four-year period to some 147 people. These were mostly high-interest secured loans, and he took steps to attempt to re-possess customers’ property when they were unable to repay. In total, he collected at least £2 million in payments, and it is reported that none of his customers were aware that he did not possess the necessary authorisation.

Passing sentence, His Honour Judge Beddoe referred to the defendant’s willingness to “deliberately flout the law”, and to try to enforce credit agreements which he must have known were not enforceable.

The FCA press release adds that the individual did, on one occasion, write a letter to the regulator, in an “attempt to obtain a response that he could use to sanction his conduct.” In court, HHJ Beddoe described this letter as a “contrived conceit”.

The individual will serve this three and a half year term consecutively, once he has completed his previous 15 month jail term for contempt of court. On his release, the individual will become subject to a Serious Crime Prevention Order (SCPO), which severely limits the credit activities he can carry out. Should he breach the Order, he could be sentenced to up to five years in prison. Proceedings are also under way to confiscate the proceeds of his criminal activity, and he has previously been disqualified from serving as a director for 15 years, which is the maximum sanction that can be imposed in this instance.

Mark Steward, Director of Enforcement and Market Oversight at the FCA, said:

“The court is sending a very clear message that deliberate and repeated offending will lead to long periods of imprisonment. Today’s decision also imposes the FCA’s first Serious Crime Prevention Order which will severely inhibit Mr Gopee’s ability to reoffend and should protect consumers in the future. The FCA will continue to take whatever action is necessary to bring offenders to justice and protect consumers.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


FCA summarises MiFID II changes for advisers

Part II of the Markets in Financial Instruments Directive (MiFID II) has now been in force for a little over a month. In its January 2018 Regulation Round-up, the Financial Conduct Authority (FCA) has included a link to a webpage that summarises the main implications of this piece of European legislation for retail investment advice firms.

Advisers are expected to disclose all fees, costs and charges which relate to their advice. Before the sale, the client should be informed of the expected costs, and post-sale, they should be informed of the actual costs. The FCA lists the items that need to be disclosed as: all one-off and ongoing charges, and transaction costs, associated with the financial instrument; all one-off and ongoing charges, and transaction costs, associated with the investment service; all third party payments received, and the total combined costs of these three categories.

The illustration which the client receives should show expected returns from the investment once all of these charges have been taken into account.

MiFID II uses a new definition of independence, which requires that firms holding themselves out to be independent financial advisers “must assess a sufficient range of relevant products that are sufficiently diverse in terms of type and issuer to ensure that the client’s investment objectives can be suitably met.”

The FCA adds that, while this does not mean that an adviser needs to assess products from every provider in the marketplace, the range of products and providers covered by the assessment should be sufficiently broad as to be representative of the market as a whole. It adds that, to be considered genuinely independent, the requirement to consider the merits of “all types of financial instruments, structured deposits and other retail investment products” remains in force.

Any firm that wishes to offer advice, or to arrange transactions, in structured deposits now requires specific permission from the FCA to do this – it is not covered by the standard permission to give investment advice.

Unless they are able to tape all conversations with clients which “relate to the reception, transmission or execution of an order,” advisers must maintain a comprehensive written record of the conversations, and these notes must be written at the same time as the client meeting takes place.

Finally, on the subject of inducements, advisers are warned that they “may only accept certain minor non-monetary benefits.” The FCA guidance adds that offers of hospitality can be accepted, up to a reasonable value, but that invitations to sporting and cultural events are not deemed to be “minor” benefits.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


PPI CMC fined for making 75 million nuisance calls

A Darlington-based claims management company has been fined £350,000 after making a massive 75 million automated nuisance marketing calls.

Data protection watchdog the Information Commissioner’s Office acted after the payment protection insurance (PPI) claims company engaged in its large-scale illegal campaign between November 2015 and March 2016.

Not only did the company breach regulations by making these calls to individuals who had not consented to receiving them, but it also broke the law in another way, as the calls did not identify the company who was making the communication.

Some of those who complained to the ICO spoke of being called more than once per day by the company, and of calls being made late in the evening.

In an attempt to ensure it can recover the fine, the ICO has blocked attempts by the company’s director to wind up the company. He failed to co-operate with information requests from the ICO during its investigation, and when he did respond, he merely sent a letter saying that the company had ceased trading.

ICO Enforcement Group Manager Andy Curry said:

“This company blatantly ignored the laws on telephone marketing, making a huge volume of intrusive calls over a short period of time and without any apparent attempt to ensure they had the consent of the people they were harassing.

“The ICO will come down hard on rogue operators who want to treat the law and the UK public with contempt. We hope the Government will bring forward plans to introduce personal liability for directors as a matter of urgency, to stop them from escaping punishment after profiting from nuisance calls and texts.

“In the absence of a change in the law, the ICO will continue to face challenges in the recovery of penalties, and rogue directors will think they can get away with causing nuisance to members of the public.”

Although this is an example of a PPI claims company showing a blatant disregard for the law, the ICO says that complaints regarding the marketing practices of companies in this sector are decreasing. The regulator’s December 2017 report on ‘Nuisance calls and messages’ says:

“Throughout 2017 the number of reported concerns about PPI re-claim has been considerably lower than in previous years. We have yet to see the increase which we had anticipated following the launch of the FCA campaign in August.”

The ICO report suggests that there are many more complaints being made regarding nuisance calls and messages concerning accident claims, energy saving and debt management. The ICO is currently investigating 175 companies over their marketing practices, and no company in any business sector can afford to neglect the relevant legislation regarding marketing, and who can and cannot be contacted.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.