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In another development on the Payment Protection Insurance (PPI) front The Financial Services Authority (FSA) has today fined Regency Mortgage Corporation Limited (Regency) £56,000 for failures relating to its sale of mortgage related Payment Protection Insurance (PPI) in the sub prime market.

This is the first time the FSA has taken action against a firm for sales of PPI since the regulation of general insurance started in January 2005 and it’s interesting to note that the FSA has been building its ‘case’ against Regency since around August 2005. This is only 9 months or so after the FSA began regulating the general insurance market and it looks to me as though this could be the first of a number of such fines.

You can read the press release on the FSA website and there’s also a PDF available of the full final notice.

If you haven’t got time, these are the rules the FSA deemed to have been broken.

1. Failure to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems;
2. Failure to conduct its business with due skill, care and diligence; and
3. Failure to pay due regard to the interests of its customers and treat them fairly

And, in detail, these are specific reasons for the fine.

1. Regency’s information gathering processes failed to ensure that sufficient information about personal circumstances were obtained at the point of sale to ensure that MPPI recommendations met customers’ demands and needs.
2. Regency failed to identify weaknesses in or amend its systems and controls for the sale of MPPI prior to the highlighting of weaknesses at the FSA’s thematic visit of 23 August 2005.
3. Management information provided to Regency’s senior management was not sufficient to enable them to identify risks of regulatory concern arising from the sale of MPPI.
4. Inadequate compliance record keeping procedures resulted in the destruction of a significant number of demands and needs statements and questionnaires for MPPI sales completed between January and July 2005. As a result of this, Regency has confirmed that in a significant number of cases it is unable to demonstrate that its MPPI sales met the demands and needs of its customers or were suitable.
5. Regency did not have an adequate compliance function and its monitoring procedures failed to identify breaches of regulatory requirements.
6. In a number of the cases reviewed, customers were sold a policy on re-mortgaging heir homes, despite having cover already from a previous mortgage, or were sold a policy under parts of which they would not be able to claim, without consideration of whether the policy was still suitable for the customer and without the customer being made aware that parts of the policy did not apply to them.

It’s also interesting that the FSA saw the case as particularly bad because Regency’s breaches are viewed as being particularly serious

“because the Regency customer base consists primarily of sub-prime customers who traditionally have limited financial means and access to credit. The risks for these customers are therefore high if they are not eligible to claim on a recommended MPPI policy, or if the policy is not suitable for their demands and needs.”

Although, as we all know, the FSA does not regulate the secured loans market, it still regulates PPI insurance and it is only probably a matter of time before a similar case happens in the secured loans sector.