FCA fines Standard Life Assurance Limited £30m over pension sales failures
The Financial Conduct Authority (FCA) has today fined Standard Life Assurance Limited (SLAL) £30,792,500 for failures related to non-advised sales of annuities.
SLAL did not dispute the FCA’s findings and the firm’s agreement to accept the FCA’s findings meant it qualified for a 30 per cent discount. Otherwise, the FCA would have imposed a financial penalty of £43,989,300.
The said a customer requires accurate information when choosing an annuity, especially so for non-advised sales, where the customer selects the annuity based on factual information and does not receive financial advice.
SLAL was formerly part of the Edinburgh-based Standard Life Aberdeen group of companies. However, on 31 August 2018, it was sold by SLA to the Phoenix group of companies (Phoenix Group).
At the time of the acquisition the FCA probe was a known issue and an agreement was put in place to cover the costs of the enforcement action and associated fees (referred to as ‘a deed of indemnity’). Accounting provisions had also been made and declared previously to redress those customers who had been impacted.
Following its investigation into the sale of annuities at SLAL, the City watchdog found that the firm had failed to put in place adequate controls to monitor the quality of the calls between its call handlers and non-advised customers. At the same time, SLAL offered its front-line staff large financial incentives to sell annuities, which encouraged them to place their own financial interests ahead of their customers. This gave rise to a significant risk that SLAL’s call handlers would fail to provide customers with the information they needed to choose an annuity appropriate to their circumstances.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Standard Life Assurance Limited’s controls needed to place fairness to customers at their heart. Here, the financial incentives available to staff for selling non-advised annuities by telephone created conflicts which led to unfair outcomes for some customers. Firms must have controls in place to ensure they are prioritising fairness to customers.”
As part of the sales process for non-advised annuities, firms are required to explain to customers that they may get a better rate if they shop around on the open market. Where customers have health or lifestyle factors which may shorten their life expectancy, they may be eligible for an enhanced annuity. Firms need to provide clear, fair and not misleading information about enhanced annuities to help the customer make an informed decision about what product to buy.
The FCA said SLAL used high level call guidelines which gave call handlers significant discretion about how they communicated with customers. This meant that the firm failed to provide some customers with appropriate information about enhanced annuities, including the option to shop around for a better deal.
The findings of the FCA showed SLAL’s call handlers had the opportunity to receive significant bonuses and rewards if they met or exceeded sales targets. During the period of misconduct, nearly 22 per cent of call handlers received more than 100 per cent of their basic salary in bonus payments. This created the risk that call handlers would place their own financial interests ahead of fair customer outcomes.
The FCA said SLAL failed to put in place robust systems and controls to mitigate the risks created by high level call guidelines and large bonuses. It failed to adequately monitor calls between call handlers and customers and provide sufficient management information to enable senior management to identify failings in relation to the quality and volume of call monitoring.
On 31 January 2017, SLAL voluntarily agreed to conduct a past business review to identify and pay redress to those customers who were likely to have suffered, or did suffer, loss as a result of its failures. As at 31 May 2019, SLAL had paid approximately £25.3 million to 15,302 customers.
The FCA said SLAL has already contacted potentially affected customers as part of its past business review. The past business review is ongoing under the ownership of the Phoenix Group and the firm expects to complete the past business review by the end of 2019. Any concerned customers who bought a non-advised annuity from SLAL may contact SLAL (as a member of the Phoenix Group) directly.
Susan McInnes, CEO of Standard Life Assurance Limited and Phoenix Group Director, Open Business said: “While this is an historic issue and one we were aware of when we acquired Standard Life Assurance Limited, we would like to apologise to affected customers, all of whom we have already been in contact with as part of the programme of customer redress. We have also reviewed and updated our telephone practices as part of this process.
“Whenever we get things wrong, we seek to learn from our mistakes and are absolutely focused on putting things right. Our remediation programme for affected customers is progressing well and we expect it to be completed by the end of the year.”