HomeServe Membership Limited (HML) has agreed to pay a fine of £30,647,400 for breaches of Principles 3, 6 and 7 arising from sales of home emergency and repairs insurance.

HML’s Principle 3 systems and controls failings included:

• the Board paying insufficient attention to compliance issues, with compliance monitoring reports not included in Board packs and limited discussion of compliance issues. HML made the Legal and Compliance Director redundant which meant there was no compliance representation on the Board and the compliance department was not given sufficient weight to raise serious issues;
• inadequate regulatory training for senior management which resulted in a lack of understanding of objectives such as fair treatment of customers and a primary focus on meeting sales targets. Some individuals were also unclear about details of the approved persons regime;
• a remuneration structure which inappropriately incentivised sales and complaints staff to focus on quantity rather than quality. Sales commission was a significant percentage of basic salary whereas quality-related deductions were not. Complaint handlers were given targets for, and rewarded for, numbers of complaints closed; and
• inadequate IT software which failed to detect pricing errors and duplicate cover and inadequate testing of these systems.

HML’s Principle 6 treating customers fairly breaches arose from an ineffective customer complaint handling process which resulted in failure to investigate and resolve complaints fairly. A fast track process was implemented to deal with increased volume. Some complaints were not properly investigated and some customers were not compensated as they should have been.

HML’s Principle 7 customer communication failures included:

• inadequate information at the point of sale, including in relation to exclusions; and
• a profit driven culture where the pursuit of sales to existing customers was prioritised over the fair treatment of customers.

HML’s conduct took place between January 2005 and October 2011. Given the change in the penalty policy in March 2010, the FCA calculated the penalty for the first five years under the old policy, resulting in a fine of just over £5 million after settlement discount. However, the penalty for the next 18 months was calculated under the new regime by reference to 10% of HML’s relevant income in that period, resulting in a penalty of around £25.5 million (including discount). The redress forecast is a further £16.8 million.

However, the overall fine was lower than the figure reported to have been included in HML’s Warning Notice of £34.5 million.

View Final Notice: HomeServe Membership Limited, 12 February 2014