The U.K.’s Financial Services Authority has ordered Royal Scottish Assurance, a joint venture between the Royal Bank of Scotland and Scottish Equitable, to pay a £2 million ($2.86 million) fine as a result of irregularities in the sale of endowment mortgages.
The device, popular in Britain in the 1980’s and early ’90’s, involved home buyers purchasing an insurance contract to pay off their mortgage loan. As the investment climate changed, premiums on the policies became insufficient to repay the loans, but RSA failed to take this into account, and when it became apparent, tried to induce policyholders to increase their premium payments.
According to a BBC report, the FSA found that RSA had “failed to act with due skill, care and diligence.” The incorrect pricing and the failure to disclose the problem in a timely manner led to the imposition of the fine, the largest the FSA has ever levied.
RSA chairman Benny Higgins apologized to policyholders for the failings, and told the BBC that RSA’s management had been changed completely and “far-reaching changes have been made” in operational procedures.
He also indicated that RSA would seek to recover damages from Scottish Equitable, who provided the product.
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