The Financial Conduct Authority (FCA) has fined Carphone Warehouse (CPW) £29,107,600m for failings that led to its customers buying Geek Squad (a mobile phone insurance and technical support product offered by CPW) when it was not suitable.
During the relevant period (December 2008 – June 2015), the FCA found that CPW failed to give its sales consultants appropriate training to enable them to give suitable advice to customers purchasing Geek Squad. In particular, consultants were not trained to assess customers’ demands and needs and were trained to recommend Geek Squad when customers already had cover.
During the relevant period CPW operated an advised sales process. As part of its systems and controls, CPW established four “Must Do” compliance steps. CPW believed erroneously that as long as these Must Dos were followed, sales would be compliant. The four Must Dos did not take into account, however, whether the product met customers’ demands and needs. This was something that CPW was required to ensure under FCA Insurance Conduct of Business rules.
Questions asked by sales consultants were designed to ascertain why a customer might need Geek Squad and sales teams were trained in “objection handling”. This resulted in sales consultants not providing customers with advice about the suitability of the product.
CPW’s internal processes failed to take appropriate steps to identify mis-selling problems. Reports to a CPW board committee on sales compliance were produced by the compliance function. These reports replied upon various performance indicators which failed to highlight complaints about mis-selling. These indicators were based on incorrect assumptions and had not included information that would provide reasons for cancellations and details of complaints.
During the relevant period CPW made over £444.7m from sales of Geek Squad. In 2014 35% of policies were cancelled within 3 months of inception. The FCA identified high cancellation rates as an indication of mis-selling which CPW had failed to properly take into account.
The current penalty reflects the fact that CPW’s breaches “demonstrate significant weakness in CPW’s procedures, management systems and internal controls”. It is worth noting that CPW was fined in September 2006 for failing to send customers statements of demands and needs and for breaches of internal systems and controls; a factor which is likely to have influenced the size of the latest fine.