The Financial Conduct Authority fined an insurance firm £8.4 million this month for failing to treat customers fairly over the sales by outsourcing companies of accident insurance.
The FCA said that Stonebridge International Insurance failed to provide customers with fair and balanced information and put up barriers to prevent customers from cancelling policies. The FCA added that these failings were made possible by Stonebridge's poor systems and inadequate oversight of the outsourcing companies.
These failings were a breach of Principle 3 (Management and control) and Principle 6 (Customers' interests) of the FCA's Principles for Business and the action was pursued as part of the FCA's objective to protect consumers.
Stonebridge's sales of personal accident, accidental death and accidental cash plan products were made by outsourcing companies over the phone to customers in the UK, Germany, France, Italy and Spain. Stonebridge targeted people in middle to low income brackets who did not have a college degree or professional qualification.
The FCA found that the telesales scripts used did not provide clear information and emphasised the ability to cancel policies in order to drive sales. When customers tried to cancel, the process designed by Stonebridge presented barriers to cancellation.
Stonebridge's poor governance and monitoring of the outsourcing companies was blamed for the mistreatment of customers, along with an "aggressive" outsourcing timetable and an inadequately resourced compliance department.
The FCA considered the failings particularly serious as almost half a million people were affected. Stonebridge is contacting affected customers to determine whether they should receive compensation and has already paid out £400,000 to customers in the UK.
The fine is a reminder to all companies who outsource functions that they are under a duty to oversee outsourcing companies and ensure they comply with all relevant regulatory requirements.
Companies should be aware of the general outsourcing requirements in the FCA Handbook and take reasonable steps to ensure compliance. This should include having contractual mechanisms in place to flow requirements down to outsourcing companies. Failure to do so can result in a fine from the FCA.
The decision to outsource functions is an important one for any organisation and legal advice should always be sought when negotiating significant arrangements.