Royal Liver Assurance Limited (“Royal Liver”), a mutual incorporated friendly society, was fined £550,000 for breaches of rules and principles in connection with the mis-selling of with-profit endowment policies between 1 July 1999 and 15 September 2003. The breaches under the current regulatory regime related to the FSA’s rules on senior management systems and controls (SYSC), Principle 2 (skill care and diligence) and Principle 3 (management and control) of the Principles for Businesses.

The breaches related to Royal Liver’s failure to take reasonable steps to obtain relevant information about customers’ financial and other circumstances before making recommendation; failure to make suitable recommendations; failure to establish and maintain adequate systems and controls for ensuring compliance with applicable requirements and standards; and failure to conduct its business with skill, care and diligence.

The FSA found that Royal Liver’s failings were mitigated by a number of factors including the fact that after identifying a potential area of mis-selling in relation to older customers it took prompt action of its own initiative to prevent any further such misselling. It devised and structured a compensation scheme for all customers who had purchased the with-profit endowment policies that was likely to ensure that redress would be offered more efficiently and quickly than if the firm had not cooperated so fully with the FSA and it agreed to undertake a Lesson Learned Project with a view to strengthening its systems and controls.

Royal Liver agreed the facts and matters highlighted by the FSA and the Final Notice was issued on 6 April 2006. Margaret Cole, the FSA’s Director of Enforcement, commented that “without this level of co-operation the regulator would have been minded to levy a much higher penalty”. Besso Limited (“Besso”) an insurance intermediary was fined £20,000 for failing to apply for approval of an employee who held a significant management role at the firm when it first applied for registration and carried out controlled functions.

The Financial Services and Markets Act 2000 (“the Act”) provides that only persons approved by the regulator may carry out controlled functions in relation to an authorised firm. Controlled functions fall into three broad categories: those involving a significant influence in relation to the authorised firm’s affairs; dealing with the firm’s customers; and dealing with the property of customers. The firm’s failings were regarded as more serious in the light of the fact that the individual in question had previous convictions for fraud and it was alleged had committed various frauds while employed with Besso. It was stated that the convictions would have been picked up by the FSA if an application for approval had been submitted at the appropriate time. However the FSA acknowledged the prompt remedial action adopted by Besso.

This case was the first that the FSA had settled at stage one of the new enforcement procedures, which meant that Besso was able to benefit from a 30 percent reduction in the level of the fine in accordance with the fines discount scheme. Deutsche Bank AG (“Deutsche”) was fined £6,363,643 for breaching Principle 5, by failing to observe proper standards of market conduct, and Principle 2 in respect of its failure to conduct its business with due skill, care and diligence. In addition Deutsche’s former Head of European Cash Trading was fined £350,000 for being knowingly concerned in the failure to observe proper standards of market conduct.