The fine, which is in the final stages of being agreed by senior PIA executives, will be the largest to have been handed out by the regulator for any rule breach. DBS may still appeal against the fine.
Its size, and the issue for which it is being levied, will be a severe embarrassment to Ken Davy, the company's chairman, who sits on the PIA board. Mr Davy, a well-known figure within financial services, is also a past president of the Life Insurance Association, an industry trade body with almost 20,000 members.
The fine also raises fresh questions about the PIA's board, several of whose members have faced similar humiliations in the past few years. They include Alan Daffern, recently retired PIA board member and chief executive at Willis Corroon, whose company was fined last year by Imro, the fund managers' regulator, also for pensions mis-selling.
A PIA spokeswoman refused to comment. A spokeswoman for DBS said the company knew nothing about the impending fine.
DBS, based in Huddersfield, represents more than 1,700 independent financial advisers throughout the UK. The company, which has a full Stock Exchange listing, is capitalised at more that pounds 100m. Under the network arrangement, advisers join DBS and pay the company a proportion of their commission income.
In return, DBS handles the burden of compliance and regulation, offers training and uses a head office research team to identify suitable products for its members to sell to their clients. The network also negotiates higher commission rates for its members.
The network grew to about 700 member firms by the early 1990s. Since the formation of the Personal Investment Authority in 1994 and the implementation of tighter regulation, DBS has grown to some 1,600 member firms.
The company has long prided itself on its stringent selection procedures, which it claims have ensured that potentially bad advisers are refused membership. DBS also operates tight controls on its advisers, requiring them to recommend only products which have been approved by its research team.
However, critics have pointed out that many DBS members were recruited at a time when controls were far slacker. In the early 1990s, DBS was mired in a compensation battle with more than 100 elderly home-income plan victims, who claimed they were mis-sold investment plans that led to them owing thousands of pounds in increased mortgages. Settling the case cost DBS more than pounds 1.5m.
Fears have been voiced within the industry that the pensions scandal is likely to have affected many seemingly above-board companies.
Mis-selling of pensions by DBS members is believed to be concentrated in a few localised areas. But the scale of the fine is thought to relate also to the PIA's perception that the speed with which DBS is dealing with its compensation cases is far too slow.
In its last annual report, DBS said it had set aside a sum to meet compensation claims against it but refused to say how much that was.
DBS was founded by Mr Davy in the 1970s, becoming a network in the 1980s. It joined AIM in 1995 and gained a full listing this year.Reuse content