The FSA - In Action - 3/5

This is the third of 5 posts, which relate to the FSA taking action against firms which they regulate.

I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA  to the firms or individual involved.

In each of these 5 posts I will include highlighted extracts.

1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.

2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself

However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.

As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.

In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)

However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.

And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".

You can find full details in the links for the full FSA Handbook I listed in an earlier post

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Please read in full the Press Notice in this third example.

The Press Notice opens with the primary two aspects involved - a fine, and customer redress:


The Financial Services Authority (FSA) has today fined Redstone Mortgages Limited (Redstone) £630,000 for poor treatment of some customers facing mortgage arrears.


The firm has agreed to redress customers who were charged unfair and/or excessive charges while they were in arrears. It is estimated that the redress will cost the firm up to £500,000.


Whilst asking you to read the full document, here are some edited extracts:


The FSA has identified a number of serious failings by Redstone which occurred between 1 January 2007 and 5 August 2009 in relation to its mortgage arrears handling processes and in its dealings with customers in arrears.


These include:

Applying four charges to customers’ accounts that were unfair and/or excessive.


These were:
A fee for a returned direct debit which was charged regardless of how many times the direct debit had already been returned unpaid;

Margaret Cole, director of enforcement and financial crime, said:

"Many of Redstone’s customers were in a vulnerable position, having fallen into arrears on their mortgage payments, and firms should not charge such customers excessive and unfair fees. This is not how the FSA expects lenders to treat customers in arrears.

"Rather than assessing each customer’s personal and financial circumstances on an individual basis, the firm was applying a one size fits all approach by aiming to reduce arrears to less than two months.

"The FSA is committed to clamping down on mortgage lenders who fail to adhere to treating customers fairly rules. We are crystal clear about the standards we expect and will take tough actions against firms who breach these rules. "

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Now, let's look at the "Final Notice" in this example.

Again, I ask that you read the item fully, but here are some edited extracts:

1. THE PENALTY 

1.1. The FSA gave Redstone Mortgages Limited (“Redstone”/”the Firm”) a Decision Notice on 8 July 2010 which notified the Firm that pursuant to section 206 of the Financial Services and Markets Act 2000 ("the Act"), the FSA had decided to impose a financial penalty of £630,000 on the Firm in respect of breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.3.1 R, 12.5.2 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 1 January 2007 and 5 August 2009 (“the Relevant Period”). 

 2.1. The breaches of the Principles and MCOB Rules, which are described in more detail in section 4 below, relate to a number of serious failings by Redstone in relation to customers with a mortgage with the Firm who were in arrears. 

2.3. Redstone breached Principle 6 during the Relevant Period in that it failed to pay due regard to the interests of its customers and treat them fairly. In particular, the following failings were identified in that Redstone: 

(6) applied certain charges that were unfair and/or excessive.   

2.4. Redstone also breached MCOB 12.3.1 R, 12.5.2 R and 13.3.1 R in relation to the facts
described at paragraph 2.3 above. 

3.3. Redstone is an authorised person for the purposes of section 206 of the Act. A requirement imposed on a firm includes the Principles and Rules made under section 138 of the Act, which provides that the FSA may make such rules applying to authorised persons as appear to be necessary or expedient for the purposes of protecting the interests of consumers. 

3.5. Principle 6 provides that: 

A firm must pay due regard to the interests of its customers and treat them fairly. 

4.19. During the Relevant Period, Redstone imposed a number of excessive or unfair charges on customers in arrears.

4.20. The excessive or unfair charges imposed by Redstone were: 

(1) a fee for a returned direct debit which was charged on each re-presentation of the direct debit by the Firm regardless of the number of times it had already been returned unpaid; 

5.2. Principle 6 requires that a firm must pay due regard to the interests of its customers and treat them fairly. In doing so, firms should ensure that customers are treated fairly if they are in arrears with their mortgage by: 


(1) being flexible in considering a customer’s personal and financial circumstances




5.4. In addition, Redstone did not treat its customers fairly as a result of applying charges and fees to a customer’s account that were excessive and/or unfair. 


5.5. The Firm’s failings resulted in some customers incurring excessive or unfair costs and accruing arrears that could have been avoided had Redstone adopted a more flexible and fair approach to arrears management that properly took into account a customer’s personal and financial circumstances. 

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The fourth of these five examples showing the FSA enforcing both their "Rules" and "Principles" will follow in the next post.