FSA fines mortgage firm and its chief executive for re-mortgage and PPI selling failuresMargaret Cole
"The significant fines imposed on both Hadenglen and Mr Hayes reflect the seriousness of their actions."
FSA/PN/099/2007
6 September 2007
The Financial Services Authority (FSA) has fined Hadenglen Home Finance Plc (Hadenglen) £133,000, and its chief executive £49,000, for inadequate systems and controls when recommending re-mortgages and Payment Protection Insurance (PPI) to customers. This is the first time the FSA has fined both a firm and its chief executive for re-mortgage and PPI failings.
The failings were discovered as a result of the FSA's second phase of PPI work in May 2006. The FSA found that Hadenglen exposed approximately 2,000 re-mortgage and 1,900 PPI customers to the unacceptably high risk of being sold a product which was not suitable.
Hadenglen's Chief Executive Richard Hayes was responsible for the firm's business practices and for ensuring that its systems and controls for selling re-mortgages and PPI were appropriate. He implemented a sales strategy for re-mortgages without regard to the risk that customers would have to pay an early redemption charge and other fees when re-mortgaging may have been unsuitable.
Mr Hayes also failed to ensure that the sales practices for PPI were adequate. Hadenglen did not gather sufficient information from customers and did not take into account the cost of PPI when making a recommendation.
As a result re-mortgage customers incurred significant charges that may not have been in their best interests and PPI customers were advised to purchase a product that may not have been suitable for their needs or under which they were not able to claim.
Margaret Cole, FSA Director of Enforcement, said:
"Firms must develop and maintain systems and controls that minimise the risk of providing unsuitable advice to customers. The penalty imposed on Mr Hayes should leave senior management within firms in no doubt that the FSA will hold them to account if they fail to treat their customers fairly.
"PPI has been a priority for the FSA since general insurance regulation began and it continues to be a priority for us. This is the first time we have taken action against a chief executive for PPI selling failures. The significant fines imposed on both Hadenglen and Mr Hayes reflect the seriousness of their actions."
The FSA also found serious weaknesses in Hadenglen's compliance monitoring, training and competence regime, use of management information and senior management oversight of the business.
Mr Hayes has implemented a comprehensive review of systems and controls and retained external consultants to advise on this process. Hadenglen has implemented a remedial action plan for consumers which involves a customer contact exercise and redress where appropriate. Without this action the fines would have been significantly higher. In addition, Mr Hayes and Hadenglen agreed to settle at an early stage of the FSA's investigation and therefore qualified for a 30% discount under the executive settlement procedures. Without the discount the fines would have been £70,000 for Mr Hayes and £190,000 for Hadenglen.