Royal London to pay out £15m over bad advice

Royal London Mutual, the Essex-based life assurance society, has been fined £400,000 and ordered to pay £15m in compensation in the latest clampdown by the Financial Services Authority on bad financial advice.

The fine relates to sales across Royal London's entire range of endowments, life policies and savings plans between April 1996 and February 1999. It is the 10th largest penalty levied by City regulators, and the fourth largest imposed in the past year under the regulations of the Personal Investment Authority, which is now part of the FSA.

The compensation payments will average £230 for Royal London's estimated 65,000 policyholders.

The FSA stressed that it had not found evidence of "misselling" as such at Royal London, although the society could not prove it had sold products correctly. Members of Royal London's sales team gave bad advice and were neither trained nor monitored properly, it said. The problems were compounded by inadequate systems and record-keeping, which meant failures were able to continue for three years. The problems came to light as a result of routine checks by the PIA on the society during 1998.

The punishment comes amid growing concern over the misselling of financial products. Earlier this week policyholders in Equitable Life were revealed to be considering a damages claim on the basis that they were victims of misselling.

A spokesman for Royal London said: "It's fair to say we weren't fast enough in keeping up with rising standards." The society is writing to affected customers.

Royal London withdrew its door-to-door sales force for six months in 1999 for retraining, at a cost of £20m. It also replaced commissions with higher basic salaries and bonuses.

As a mutual society, Royal London's members will ultimately bear the cost of the affair. However, policyholders are unlikely to notice any negative impact as the society's life fund totals some £10bn.

In the past 12 months, the PIA has fined Royal Scottish Assurance £2m and United Friendly £700,000 over lapses in internal controls. The FSA has fined 44 companies a total of £1.46m so far this year.

Sir Howard Davies, the FSA's chairman, has come under fire from some quarters of the City in the wake of the crises at Equitable, and more recently, Independent Insurance. But a spokesman defended him yesterday, saying that the occasional levying of fines was "not a regulatory failure, it's a regulatory success".