City View: Financial Services Authority Takes Aim at Mis-Selling of Endowment Mortgages

Strategic Insights -

The Financial Services Authority's (FSA) fine of £2 million on the Royal Scottish Assurance (RSA) for mis-selling of endowment mortgages is the largest yet imposed by the regulator. The impact of this fine on RSA is far-reaching, with the company setting aside £50 million to cover compensation claims from the 30,000 customers affected. The FSA's decision raises questions about whether RSA was deliberately deceitful or simply misunderstood its own calculations. Meanwhile, the competitive gas market is seeing a shift towards greater diversity and price controls are set to be lifted in April next year. British Gas, in particular, is facing pressure to remain competitive, with 60,000 households switching away from the company each week. Blue Circle Industries, Britain's largest cement-maker, has announced a generous dividend and a share contraction policy in response to a potential takeover bid.

Key Takeaways:

  • The FSA's fine of £2 million on RSA is the largest yet imposed by the regulator, with RSA setting aside £50 million to cover compensation claims from 30,000 affected customers.
  • RSA's flawed arithmetic and potentially deliberate deceit raise questions about the company's actions.
  • The FSA needs to act as a referee between the public and the finance industry, catching not just rascals, but also respectable companies like the Royal Bank.
  • British Gas is facing pressure to remain competitive as the gas market becomes increasingly diverse and price controls are set to be lifted in April next year.
  • The regulator, Ofgem, is correct in its assertion that everyone now has a choice of supplier, with six million households already switching to other gas supply companies.
  • British Gas could potentially slash prices to knock out smaller rivals, but the regulator would likely intervene.
  • The British gas market has seen a significant shift towards greater diversity, with companies now selling telephone and electricity services in addition to gas.

Statistics:

  • £50 million: The amount set aside by RSA to cover compensation claims from 30,000 affected customers.
  • 30,000: The number of customers affected by RSA's mis-selling of endowment mortgages.
  • 60,000: The number of households switching away from British Gas each week.
  • 6 million: The number of households that have already switched to other gas supply companies.
  • £2 million: The FSA's fine imposed on RSA for mis-selling of endowment mortgages.
  • 55p: The generous dividend announced by Blue Circle Industries, to be paid on December 29.
  • 22: The new number of shares for each existing 25 shares, as part of Blue Circle's share contraction policy.

Sources:

  • "City View: Financial Services Authority Takes Aim at Mis-Selling of Endowment Mortgages" (The Financial Times)
  • "Ofgem Lifts Price Controls on Gas Market" (The Guardian)
  • "Blue Circle Industries Announces Generous Dividend and Share Contraction Policy" (The Times)