More damning evidence of how the FSA failed consumers has emerged in a sorry tale involving Aviva.
The regulator allowed the insurance giant to keep quiet about a serious blunder that may have left up to 780,000 customers out of pocket.
The errors date back to 2000 after the merger of CGU and Norwich Union when terms and conditions in contracts were not applied correctly.
As a result, life insurance, personal and workplace pensions, endowments and whole-of-life plans have been paid incorrectly. Some underpayments run into thousands of pounds.
Aviva was aware of the problems in 2007. So why were consumers and their advisers not told? It took reporters from website thisismoney.co.uk months to piece together the story using good investigative journalism.
This included spotting a line in the 2007 company report referring to money set aside for ‘compensation costs for known governance issues’.
The errors weren’t uncovered by the FSA of course. That was down to individual consumers who first had their complaints rejected by Aviva but then won their case when they went to the Financial Ombudsman.
Once nudged in wakefulness, the FSA then allowed the firm to try to sort out the problem behind closed doors.
Now, the FSA can’t be held wholly responsible for this. It was set up in such as way that cosy deals must be struck with financial firms so long as they co-operated.
But many years of dealing with the FSA left me with the impression that consumer issues were seen as a distraction from macro regulation – especially in the early years.
By last April 358 errors had been discovered with Aviva products – some mistakes are so complicated it could take years to correct them.
This was not an act of malevolence by Aviva, it was a massive blunder. But the fact that it initially failed to spot it and forced customers to use the Ombudsman does not exactly score in its favour.
The problems included applying wrong tax rates and telling customers the value of their funds could not fall when they could. Some endowment holders lost 20 pc of the value of their funds, according to the report in the Daily Mail.
Aviva has set aside £323m compensation.
Given the extent of the errors, it is inexcusable that the FSA did not put pressure on the firm to go public so its policyholders and their advisers would have full knowledge of the situation as soon as possible.
The debate about transparency in charging has been won. This case underlines why transparency in regulation is equally as important.
Why no investigation?
The independent board overseeing the audit of defined contribution pension scheme charges now has a chairperson in Carol Sergeant.