The UK’s Financial Conduct Authority (FCA) has fined Clydesdale Bank Plc (Clydesdale) £20.7m for multiple failures in its handling of payment protection insurance (PPI) complaints, and misleading the Financial Ombudsman Service (FOS). Clydesdale settled at an early stage. Had it not done so, the fine would have been £29.5m.

By May 2011, Clydesdale had a large backlog of PPI complaints, and it was receiving a high volume of new complaints. It was also finding it difficult to retrieve information for loans that had been settled more than 7 years before the date of the complaints it was receiving. In most of these cases, the original sales documentation was no longer available; and, whilst other sources of information were sometimes available, they were often incomplete. The result was that, if staff looked for documentation that was more than 7 years old, they might not find anything; and what they did find might not give them enough information to determine whether a policy had been mis-sold, or how much redress was properly due. So, in May 2011, Clydesdale’s PPI governance committee agreed that its PPI complaints handlers would no longer be required to look for PPI documents on loans settled more than 7 years before a PPI complaint was received; and that its customers would be told that, due to the time elapsed, Clydesdale was “unable” to investigate their complaints. This policy was also applied to single premium PPI sales that occurred before 2008, even though Clydesdale had already decided that complaints about these sales should always be upheld because they had been “inadequate“.

In August 2011, Clydesdale’s PPI Governance committee approved a similar policy for PPI credit card complaints, so that complaints handlers were no longer required to check for credit card statements for the period before 2000, even though credit card statements were available in microfiche for some of that period. Further, between August 2011 and June 2013, when Clydesdale wrote to a customer upholding a valid PPI credit card mis-selling complaint, it sometimes failed to mention that it was not paying redress for the period before 2000; or it implied that compensations being paid for that period when it knew that was the not the case.

The FCA estimates that, as a result of these decisions, between June 2011 and June 2013, up to 28,200 loan and mortgage PPI complaints were unfairly rejected, and up to 44,900 valid loan and mortgage complaints may have been settled at less than full value. In addition, the FCA estimates that between August 2011 and July 2013, up to 5,900 valid PPI credit card complainants may have been settled at less than full value as well.

Between May 2012 and June 2013, Clydesdale’s “FOS PPI team” provided false information to the FOS when it was asked for information about the extent of the Clydesdale’s records about particular PPI. It did this by providing false screen prints which suggested there were no records when, in fact, there were; and by altering internal “Boxi Reports” to give the same impression. As a result, the FOS could not properly determine some PPI complaints, or assess how much redress was due to some customers. Up to 6,800 loan and mortgage PPI complaints may have been affected in this way.

The FCA also found that (a) the Clydesdale’s complaints handlers were poorly trained; (b) the support and monitoring of the Clydesdale “FOS PPI team” was “weak“; (c) although Clydesdale had “three lines of defence” over its PPI complaint handling operations, none of them identified these deficiencies; and (d) whilst Clydesdale had many opportunities to identify and rectify these problems, it failed to do so. As a result, the FCA has found that Clydesdale had breached (a) Principle 6 of the FCA’s Principles for Businesses (treating customers fairly); (b) DISP 1.4.1R(1) and (2); and (c) DISP 1.4.4R.

These failures were discovered by the FCA during a file review in June 2013. When Clydesdale was made aware of them, it immediately took steps to enhance its PPI oversight and governance arrangements, strengthen its three lines of defence framework, and prevent staff from providing misleading information to customers and the FOS. The cost of these changes is expected to be £96m. Clydesdale has also decided to review all PPI complaints handled prior to August 2014, and will pay appropriate redress to any affected customers. This process will be overseen by a skilled person.