FSA offered L&G cut in fine for mis-selling

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The Independent Online

The Financial Services Authority threatened to levy an even higher fine on Legal & General if it appealed against its penalty for the alleged mis-sale of endowment mortgages, a tribunal heard yesterday.

The Financial Services Authority threatened to levy an even higher fine on Legal & General if it appealed against its penalty for the alleged mis-sale of endowment mortgages, a tribunal heard yesterday.

During the preliminary stages of the FSA's enforcement process it informed the insurer that it would consider reducing its proposed £1.3m penalty if L&G was fully co-operative. However, at a subsequent hearing of its Regulatory Decisions Committee, it added that no reduction in the penalty would be made should L&G consider challenging the decision.

Speaking on the second day of the Financial Services and Markets Tribunal hearing, Charles Flint QC, representing L&G, condemned the FSA's enforcement process. "...It was quite unlawful to seek to obtain an agreement in some way to the effect that the applicant should agree not to refer the matter to the tribunal," he said. "In our respectful submission, the decision notice does no credit to the FSA at all."

Although the FSA eventually agreed to reduce the proposed fine to £1.1m, it also emerged that L&G is likely to be liable to pay its own legal costs for the hearing - estimated at about £5m - regardless of whether it wins or loses.

Reynolds Porter Chamberlain, the commercial law firm, said the costs structure was a major flaw in the tribunal system. Jonathan Davies, a partner for the group, said: "Normally in the courts system the loser picks up the winner's bill. While such costs have not deterred Legal & General, they can clearly act as a barrier to a smaller business."

Mr Flint reiterated that the FSA approved L&G's compliance procedures during the period in which it is now accusing the group of mis-selling. Furthermore, he said there had been a difference of opinion between the FSA's supervision department, which believed L&G's compliance procedures were adequate, and its enforcement division, which was determined to pursue the insurer for mis-selling. This did not arise until after the case had been referred to the tribunal, and L&G had asked whether the FSA held any documents which might undermine the decision. The hearing, set to last six weeks, will continue today with the appearance of the FSA's first witnesses.

However, the tribunal could be eclipsed by the decision in another FSA battle - involving David Thomas, one of the architects of the split-capital investment trust industry - which is likely to be announced in a few days. The FSA is expected to lose the case, which centres around its decision to refuse to re-issue Mr Thomas with FSA authorisation, in spite of having no concrete evidence against him.

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