1

FINAL NOTICE

Mid Glamorgan

UNITED KINGDOM

1.
ACTION

1.1.
For the reasons given in this notice, the Authority hereby imposes on Moorhouse

Group Limited (“Moorhouse”) a financial penalty of £159,300.

1.2.
Moorhouse agreed to settle at an early stage of the Authority’s investigation.

Moorhouse therefore qualified for a 30% (stage 1) discount under the

Authority’s executive settlement procedures. Were it not for this discount, the

Authority would have imposed a financial penalty of £227,670.

2

2.
SUMMARY OF REASONS

2.1.
On the basis of the facts and matters described below, Moorhouse breached

Principle 3 (Management and control) in relation to oversight and control of the

telephone sales environment between 1 January 2012 and 31 December 2012,

and Principle 7 (Communications with clients) in relation to its telephone sales of

CV Add-on Products. Moorhouse sells motor and liability-related insurance

products to SMEs, which include micro SMEs. Micro SMEs are small businesses

that consist of a sole trader or have fewer than 10 employees.

2.2.
Moorhouse breached Principle 3 (Management and control) by failing to take

reasonable care to organise and control its compliance systems and controls

responsibly and effectively in relation to the telephone sales environment. In

particular it failed to:

(1)
ensure that a consistent and effective QA process was in place. The Quality

Monitoring in place in the first three months of the Relevant Period was

undertaken by one employee and was limited to reviewing one telephone

call per sales agent per week. The Quality Monitoring undertaken for the

remainder of the Relevant Period was undertaken by Performance Leaders

who had no compliance training and was more focused on sales skills

development than on regulatory compliance. Most significantly, Moorhouse

did not monitor commercial vehicle sales for two thirds of the Relevant

Period;

(2)
ensure that the Board and senior management gave sufficient attention to

compliance issues and took adequate steps to address them including

failing to review, challenge and action compliance MI that raised concerns

about the sales environment. Such concerns included for example, a

Quality Report of January 2012 which stated that the overall Quality

Monitoring score recorded was 66% (against a Board expectation of 75%),

and a Quality Report of February 2012 which stated that “the closers are

still mis-selling Add-ons by only providing a combined premium and not

informing the client that they are optional policies”; and

(3)
identify that customer data was recorded inaccurately by Moorhouse’s

telephone sales agents, which was then passed onto insurers when cover

was arranged, with the potential risk that the customers would be unable

3

to successfully claim on their policies in the event of a claim. Examples of

discrepancies identified included a customer stating that they were at fault

in an accident in 2010 but policy documentation stated the customer bore

“no blame” for the accident in 2010. In another case, when the customer

was asked by the sales agent if he worked solely on private dwelling

houses, offices, or shops the customer confirmed during the call that he

worked on commercial building sites, but the answer recorded was ‘yes’.

2.3.
Moorhouse breached Principle 7 (Communications with clients) as it did not pay

due regard to the information needs of its customers by failing to disclose

appropriate information about the limitations and exclusions of CV Add-on

Products prior to the purchase of them. Some of the limitations and exclusions

could restrict the ambit of the cover considerably. For example, the Breakdown

Add-on policy did not cover breakdowns which would be prevented by routine

servicing of the vehicle, or replacing its tyres or windows. The Excess Waiver

Add-on policy cover is provided only where the damage exceeds the excess

agreed under the core policy.

2.4.
Without the provision of balanced information, there was a risk that Moorhouse’s

customers did not have adequate information to make an informed decision at

the time of the sale.

2.5.
In its Retail Conduct Risk Outlook 2012 released on 13 March 2012 the Authority

warned firms that add-ons in general insurance gave rise to emerging risks.

Such risks included that firms might incentivise staff to pressure sell or to

automatically include the add-on without explaining the cover properly. Despite

that warning, Moorhouse did not review its sales processes to ensure compliance

with the Authority’s Principles or ensure that it had systems and controls in

place to mitigate against such risks.

2.6.
While the Authority considers the failings to be serious, it recognises that:

(1)
in response to the Authority’s concerns Moorhouse agreed to suspend

sales of add-on insurance products in April 2013 for five months and has

made significant improvements to its compliance systems and controls

since the Relevant Period; and

(2)
there is no evidence of any unsuccessful claims or of any claims being

refused as a result of any data discrepancies caused by Moorhouse during

the Relevant Period.

2.7.
The Authority therefore imposes a financial penalty on Moorhouse in the amount

of £159,300 pursuant to section 206 of the Act.

2.8.
This action supports the Authority’s operational objective of consumer

protection.

3. DEFINITIONS

3.1.
The definitions below are used in this Final Notice.

“the Act” means the Financial Services and Markets Act 2000

“the Authority” means the body corporate previously known as the Financial

Services Authority and renamed on 1 April 2013 as the Financial Conduct

“CL Product” means commercial liability products (general contracts of insurance

against risks of the persons insured incurring liabilities to employees or third

parties)

“CV Core Product” means commercial vehicle core products (general contracts of

insurance against damage arising out of or in connection with the use of motor

vehicles for the purpose of, for example, a courier business)

“CV Add-on Product” means commercial vehicle add-on products (general

contracts of insurance for events not covered by the CV Core Product, including

breakdown, excess waiver, key care and legal expenses)

“DEPP” means the Decision Procedure and Penalties Manual part of the

“MI” means Management Information

“Moorhouse” means Moorhouse Group Limited

5

“Principle” means one of the Authority’s Principles for Businesses

“Products” means all CL Products, CV Core Products and CV Add-on Products

arranged by Moorhouse

“QA” means quality assurance

“Quality Monitoring” means the reviews of telephone calls with consumers

conducted by Moorhouse as part of the overall QA processes

“Relevant Period” means 1 January 2012 – 31 December 2012

“Skilled Person” means the person appointed, pursuant to section 166 of the

Act, to review Moorhouse’s sales of Products to SME’s during the Relevant Period

and to report on its findings

“Skilled Person Report” means the Report dated September 2013 completed by

the Skilled Person pursuant to section 166 of the Act

“SME” means small and medium enterprises

“micro SME” means businesses with between 0-9 employees

“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber)

4.
FACTS AND MATTERS

Background

4.1.
Moorhouse is a general insurance intermediary based in Wales which employs

approximately 120 staff and has been authorised since January 2005.

4.2.
Moorhouse has permission to deal with both retail and commercial customers,

but its client base and business model is focused on selling motor and liability-

related insurance products to SMEs, including micro SMEs. Although the

majority of customers would be classified as commercial, micro SME customers

are less likely to be sophisticated customers and many will exhibit similar

knowledge and experience to that of a retail customer.

6

4.3.
Moorhouse sells general insurance products to its customers predominantly by

telephone.

4.4.
Moorhouse’s call centre focused on selling CL Products, CV Core Products and CV

Add-on Products to new and existing customers. Sales agents were grouped into

eight teams, each of which was under the control of a Performance Leader.

4.5.
During the Relevant Period the Board at Moorhouse comprised three Board

members. Although they only met formally on a quarterly basis they worked in

close proximity to each other and would discuss the needs of the business on a

daily business. The senior managers also worked in close proximity and would

hold meetings on a monthly basis to consider all risks in the business and review

appropriate MI.

4.6.
Where a CV Core Product is sold by Moorhouse, a variety of CV Add-on Products

are also offered to its customers. These include key care, breakdown, excess

waiver and legal expenses.

4.7.
During the Relevant Period, Moorhouse sold 9,777 CL Products, 8,911 CV Core

Products and 18,389 CV Add-on Products to new customers by telephone,

generating gross revenues of £2,276,701. All policies had a fixed term of one

year. Moorhouse derived further revenues through online and mailshot sales and

from renewing policies of existing customers.

4.8.
In April 2013 the Authority conducted a review of a random sample of 12

telephone sales of CV Core Products and related CV Add-on Products by

Moorhouse to new customers. Moorhouse appeared to provide customers with

inadequate information in relation to CV Add-on Products before completion of

sale. The Authority also identified failings suggesting a non-compliant sales

environment.

4.9.
In May 2013 the Authority issued a Requirement for a Skilled Person to review

the telephone sales of Products by Moorhouse during the Relevant Period.

7

4.10.
The Skilled Person identified a number of failings in respect of the telephone

sales of CV Add-on Products and shortcomings in the control environment for all

Products sold by Moorhouse during the Relevant Period. In particular it found:

(1)
there were insufficient details about each Add-on Product being provided

to customers in good time prior to their decisions to purchase;

(2)
the QA arrangements in place at Moorhouse during the Relevant Period

were ineffective because an independent review function was only in place

during the first quarter of 2012, and the Performance Leaders who took

over this role did not exhibit sufficient regulatory focus or independence

expected from an effective QA process. The Skilled Person was concerned

to note that a key element of the business (commercial vehicle sales) was

not subject to quality review arrangements for a significant part of the

year (2012);

(3)
ten sales of CL Products and CV Core Products were identified where there

appeared to be evidence of discrepancies between information provided by

the customer during the sales process and data subsequently recorded by

Moorhouse and passed on to the insurer when cover was arranged, with

the potential risk that the customer would be unable to successfully claim

on his/her policy in the event of a claim; and

(4)
there was insufficient priority given to compliance matters in respect of the

telephone sales environment including inadequate challenge and oversight

by the Board or senior management.

Compliance Systems and Controls

4.11.
There were a number of weaknesses in the systems and controls in place at

Moorhouse relating to its oversight of the telephone sales environment.

4.12.
There was a small compliance function at Moorhouse during the Relevant Period.

For the period 1 January 2012 to 31 March 2012, Quality Monitoring was carried

out by a member of the compliance function who conducted QA. This consisted

of reviewing a sample of the calls made by those sales agents selling CL

Products against a checklist to identify any training needs, to ensure the correct

policy cover had been given and that Moorhouse was meeting compliance and

quality standards.

4.13.
The Quality Monitoring was limited to reviewing sales agents’ telephone calls,

and its aim was to evaluate one call per sales agent per week. It was

undertaken by one person. By contrast, the top performing sales agents in

commercial vehicles were making on average 25 sales per week, none of which

was subject to any QA process.

4.14.
The results of the Quality Monitoring were added to the QA database and

reported in a spreadsheet which was circulated on a monthly basis to senior

management. The results of monitoring were provided to the Board quarterly in

the Quality Report.

4.15.
The Compliance Report contained scores relating to Quality Monitoring with a

Board expectation of 75% compliant calls.

4.16.
Moorhouse’s Quality Monitoring was limited because:

(1)
it was only in place for the three month period from 1 January 2012 to 31

March 2012;

(2)
within that period, it was only undertaken for three weeks during the

months of January and February 2012 and for two weeks during the month

of March 2012; and

(3)
it did not include monitoring of sales in the commercial vehicle business.

Quality Monitoring by Performance Leaders

4.17.
In April 2012, Moorhouse discontinued the Quality Monitoring outlined above. In

its place, approximately six Performance Leaders (i.e. sales team leaders)

conducted weekly observations of calls made by each sales agent in their

respective teams.

4.18.
Performance Leaders were required to undertake ‘live’ monitoring of a minimum

of two calls a month per agent. By contrast, the top performing sales agents in

commercial vehicles were making on average more than 100 sales per month,

none of which was subject to any QA process until 31 August 2012.

Observations were captured in a Quality Monitoring summary which was fed

back to individual sales agents during monthly appraisals and to the Head of

Sales. The primary focus of this process was to improve sales agents’ selling

skills, not compliance with internal processes or regulatory requirements.

4.19.
The Quality Monitoring by Performance Leaders had the following key

(1)
it did not include monitoring of sales in the commercial vehicle business

from 1 April 2012 to 31 August 2012;

(2)
it was undertaken by Performance Leaders who had no compliance

training, whose role focused primarily on sales agents’ performance and

did not provide objective independence in the QA process; and

(3)
it was more focused on sales skills development than on regulatory

compliance.

4.20.
Moorhouse did not have a sufficiently robust QA process in place during the

whole of the Relevant Period as it did not operate adequate Quality Monitoring

across all types of business, allocate appropriate compliance resources to this

task, or adequately escalate the results of what monitoring it did conduct to the

Board. Its failure to monitor commercial vehicle sales at all for two thirds of the

Relevant Period – from January to August 2012 – is particularly poor.

4.21.
As a result, there was inadequate monitoring of whether sales were compliant

across the business. This meant that Moorhouse senior management was

unaware of the risk that customers were not being given appropriate

information as part of the sales process. In particular, the QA process did not

pick up instances where data provided by customers was inaccurately captured

by Moorhouse’s telephone sales agents.

Data discrepancies

4.22.
A robust QA process operating across any telephone sales environment should

monitor the data input function within the sales team and identify any data

captured inaccurately. At Moorhouse the QA process during the Relevant Period

failed to identify that such discrepancies were occurring.

4.23.
As part of the review of a sample of telephone sales the Skilled Person identified

10 of 40 telephone sales of CL Products and CV Core Products to new customers

where there were discrepancies between information provided by the customer

during the telephone sales process, the data subsequently recorded on

Moorhouse’s broking systems and sent to insurers, and the policy arranged for

the customer.

4.24.
Examples of discrepancies identified included the following:

(1)
In one sales call there were two discrepancies; the most material being

that a customer stated during the sales call that they were at fault in an

accident in 2010 but policy documentation stated the customer bore “no

blame” for the accident in 2010.

(2)
a customer said the total wage roll was £80,000 but this was recorded as

£50,000; which on discovery would have entitled the insurer to refuse any

claim based on work carried out by subcontractors because the policy

specifically excluded such claims where the wage roll exceeded £50,000.

(3)
in one sales call several discrepancies were found as follows:

a)
when the customer was asked by the sales agent if he worked solely

on private dwelling houses, offices, or shops the customer confirmed

during the call that he worked on commercial building sites, but the

system risk details state ‘yes’ in answer to that question;

b)
when asked the number of employees he had the customer stated

“four” but this was recorded as ”two” by the sales agent; and

c)
the
employer
reference
number
was
incorrectly
noted
on

documentation.

4.25.
The Authority reviewed the ten calls and associated documentation which the

Skilled Person concluded contained data discrepancies. The Authority concludes

that in five of 40 sales (12.5%) of CL Products and CV Core Products customers

faced the potential risk that a claim would be unsuccessful, either in whole or in

part, on account of the incorrect information provided to the insurer. However,

the Authority notes that there is no evidence of any unsuccessful claims or of

any claims being refused as a result of data discrepancies caused by Moorhouse

during the Relevant Period.

4.26.
These findings demonstrate that during the Relevant Period there was on

occasion inaccurate recording of data provided by the customer during the sales

process which was not adequately identified by the QA process and so could not

be escalated to the Board and senior management. This is particularly

concerning as a significant proportion of the recording errors (12.5%) concerned

material data which could have affected the customer’s ability to claim

successfully under their insurance cover.

Governance and compliance oversight

4.27.
During the Relevant Period Moorhouse was unable to demonstrate sufficiently

robust governance with regard to compliance issues. Moorhouse did not provide

sufficient compliance MI from the QA process to the Board and senior

management. While Moorhouse was a small firm the informal nature of its

governance arrangements meant there is an insufficient record that the

compliance MI that was available was subjected to appropriate consideration,

challenge and action by the Board and senior management.

4.28.
The Authority expects firms to provide the Board and senior management with

the information required to identify, measure and control the risks inherent in its

business; in this case the telephone sales environment and to document

appropriately the provision of the information to the Board.

4.29.
The following compliance MI was produced at Moorhouse during the Relevant

(1)
Complaints monthly report - January, February, March 2012;

(2)
Quality Report - January, February, March 2012;

(3)
Quality Monitoring summary (monthly); and

(4)
Compliance Report - January, March, June, September and December

2012.

4.30.
The compliance function produced the Compliance Report and provided it to the

Managing Director at the end of each month and to the Board quarterly. It

consisted of complaints records and potential compliance issues including a TCF

MI Scorecard containing both qualitative and quantitative data.

4.31.
Moorhouse prepared Complaints and Quality Reports on a monthly basis and

these were submitted to senior management each month and to the Board on a

quarterly basis.

4.32.
The Quality Report contained the results of the QA process between January-

March 2012, described at paragraphs 4.12 – 4.16 above. The findings of the

call monitoring carried out by Performance Leaders described at paragraphs

4.17 – 4.20 above were provided in the Quality Monitoring Summary. However,

as referred to at paragraphs 4.13 – 4.21 above, Moorhouse did not have a

sufficiently independent QA process in place during the Relevant Period to

monitor the commercial vehicle aspect of the business.

4.33.
Although several types of compliance MI were provided to the Board and senior

management during the Relevant Period, the MI was inadequate and did not

enable them to have sufficiently robust oversight of the risks inherent in its

business.

Governance arrangements

4.34.
Moorhouse is a relatively small general insurance intermediary with a small

senior management team and compliance function. There were regular informal

discussions between the management team (who were in close proximity to

each other) about the operation of the telephone sales environment but such

discussions that there were are not evidenced adequately from Moorhouse’s

records. The Authority expects authorised firms to have effective governance

systems which can evidence adequate focus on compliance and the

management of risk.

4.35.
During the Relevant Period there was a lack of formal record keeping to

evidence either discussion, review, or challenge by the Board or senior

manager’s team of the compliance MI or of any remedial action Moorhouse took

in respect of any of the deficiencies identified. Several reports during the

Relevant Period raised concerns about the telephone sales environment. For

example, the Quality Report of January 2012 stated that the overall Quality

Monitoring score recorded was 66% (against a Board expectation of 75%). The

Quality Report of February 2012 stated that “the closers are still mis-selling

Add-ons by only providing a combined premium and not informing the client

that they are optional policies”. In the circumstances the FCA finds that

Moorhouse did not take adequate steps to ensure that it had documented its

discussion, review or challenge of Compliance MI.

4.36.
At the Board meetings during the Relevant Period where the Compliance Report

was submitted the minutes merely record that the “report was distributed to

directors prior to the meeting and any action points put in place” with no further

indication from the documentary record that the contents of reports were

discussed, analysed or acted upon by the Board.

4.37.
In addition, representatives of the compliance function, while they attended

monthly senior management meetings, were not invited to Board meetings to

present the Compliance Report or respond to any questions from members of

the Board. The Compliance function was, accordingly, not given sufficient

opportunity at formal Board meetings to orally raise concerns regarding the

telephone sales environment or assist the Board with managing the risks set out

in the Compliance Report.

4.38.
Moorhouse did not take minutes of the monthly senior managers’ meetings

whose purpose was to consider all risks in the business and review appropriate

MI.

4.39.
As a result of these inadequate governance arrangements, there is little

documentary evidence to demonstrate that Moorhouse analysed, at Board or

Management level, whether its QA process was effective and covered every

aspect of the business. It is apparent that in practice, Moorhouse’s QA process

was ineffective because there is insufficient evidence to demonstrate that the

process identified common issues and trends or identified and mitigated

potential risks. It is not documented as to how the Board and senior

management played a part in the management of the risk of potential customer

detriment.

4.40.
The deficient QA process and inadequate oversight of compliance issues at

Moorhouse heightened two significant risks in the telephone sales environment.

First, there was an increased risk that Moorhouse’s customers who were sold CV

Add-on Products did not have adequate information to make an informed

decision at the time of the sale. Further, Moorhouse did not identify that

discrepancies between the customer data taken by its telephone sales agents

and the data subsequently sent to insurers were occurring.

Inadequate information prior to purchase

4.41.
Each of the CV Add-on Products sold by Moorhouse included various limitations

and exclusions, some of which restricted the ambit of the cover considerably.

For example:

(1)
key care: the policy did not cover keys lost or stolen when not attached to

a fob;

(2)
breakdown: the policy did not cover breakdowns which would be

prevented by routine servicing of the vehicle, or replacing its tyres or

windows;

(3)
excess waiver: cover was provided only where the damage exceeds the

excess agreed under the core policy; and

(4)
legal expenses: legal costs to a maximum of £50,000 or £100,000 only if

the insurer considers that there are reasonable prospects of success.

4.42.
The explanation of the sale of add-on products must remain clear, fair and not

misleading at each stage of the sales process to ensure customers receive a

balanced view of the benefits and limitations of the underlying policies and any

CV Add-on Products. Although Moorhouse was not required to provide full

disclosure of all the terms and conditions attaching to the CV Add-on Products, it

was under an obligation to ensure discussions about the limitations and

exclusions of the CV Add-on Products in customer calls it highlighted were

balanced and presented a clear and fair summary to its customers.

4.43.
From the review of a random sample of 60 Products sold by Moorhouse, the

Skilled Person observed that in a significant number of cases the customer may

have been unable to make an informed decision about CV Add-on Products,

because the sales agent provided an insufficient explanation of important

product details. In particular, whilst customers were informed of the products’

benefits, the details of key product limitations and exclusions were rarely

provided.

4.44.
The Authority’s review of a random sample of CV Add-on Products sold by

telephone to new customers found that in 15 of 16 sales, the sales agents did

not disclose important information about the main limitations and exclusions.

4.45.
A common theme throughout the calls was that the features and benefits of the

CV Add-on Products were read out by Moorhouse’s sales agents before quoting

the price. The details of important limitations and exclusions were not, however,

outlined clearly and fairly. The Authority considers that this does not present a

balanced picture of the CV Add-on Product being sold and therefore does not

communicate information to customers in a way which is clear, fair and not

misleading.

Improvements

4.46.
After the Authority’s concerns were made known, in May 2013 Moorhouse

voluntary and temporarily ceased selling the CV Add-on Products to new

customers, while it undertook a review of its systems and processes and made

significant and material enhancements. The improvements introduced included

enhanced sales and monitoring processes and governance arrangements

including the introduction of new sales scripts and call monitoring procedures

together with the appointment of a new Head of Compliance.

4.47.
As a result of the considerable and material steps taken by Moorhouse in

October 2013 the Authority indicated that it was satisfied that Moorhouse had

made the enhancements necessary to make its telephone sales environment

compliant with the Authority’s Principles and Rules.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Final Notice are referred to in Annex A.

5.2.
Moorhouse
breached
Principles
3
(Management
and
control)
and
7

(Communications with clients) of the Authority’s Principles for Businesses for the

reasons set out below.

5.3.
Moorhouse breached Principle 3 by failing to take reasonable care to organise

and control its compliance systems and controls responsibly and effectively in

relation to the telephone sales of all Products. In particular:

(1)
the QA process in place during the Relevant Period was inconsistent and

ineffective. For a large part of the Relevant Period there was no check on

whether adequate information had been provided to customers purchasing

CV Add-on Products. This heightened the risk that customers were not

treated fairly;

(2)
the poor QA process meant that Moorhouse did not identify that

discrepancies between the customer data taken by Moorhouse’s telephone

sales agents and the data subsequently sent to insurers were occurring,

with the potential risk that that the customer would be unable to

successfully claim on his/her policy in the event of a claim; and

(3)
the Board received inadequate MI about the telephone sales environment.

When they did receive MI, the Board and senior management gave

insufficient attention to compliance issues as they failed to invite

Compliance to board meetings.

Principle 7

5.4.
Moorhouse breached Principle 7 because:

(1)
it did not provide customers with balanced information about its CV Add-

on Products throughout the sales process; and

(2)
its sales agents failed to disclose appropriate information about the main

limitations and exclusions of CV Add-on Products.

5.5.
The lack of this information meant that non-sophisticated commercial customers

may have been unable to determine whether the products matched their

demands and needs.

5.6.
Consequently Moorhouse’s customers did not receive information which was

sufficiently clear, fair and not misleading and may have been prevented from

making informed decisions prior to purchasing the CV Add-on product.

6.
SANCTION

6.1.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority

applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 6.5A sets out the details of the five-step framework that applies

in respect of financial penalties imposed on firms.

Step 1: disgorgement

6.2.
Pursuant to DEPP 6.5A.1G, at Step 1 the Authority seeks to deprive a firm of the

financial benefit derived directly from the breach where it is practicable to

quantify this.

6.3.
The Authority has not identified any financial benefit that Moorhouse may have

derived directly from its breach.

6.4.
Step 1 is therefore £0.

Step 2: the seriousness of the breach

6.5.
Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that

reflects the seriousness of the breach. Where the amount of revenue generated

by a firm from a particular product line or business area is indicative of the harm

or potential harm that its breach may cause, that figure will be based on a

percentage of the firm’s revenue from the relevant products or business area.

6.6.
The Authority considers that the revenue generated by Moorhouse is indicative

of the harm or potential harm caused by its breach. The Authority has therefore

determined a figure based on a percentage of Moorhouse’s relevant revenue.

Moorhouse’s relevant revenue is the revenue derived by Moorhouse from its

telephone sales of Products to new customers during the period of the breaches.

The period of Moorhouse’s breaches was from January 2012 to December 2012.

The Authority considers Moorhouse’s relevant revenue for this period to be

£2,276,701.

6.7.
In deciding on the percentage of the relevant revenue that forms the basis of

the step 2 figure, the Authority considers the seriousness of the breach and

chooses a percentage between 0% and 20%. This range is divided into five fixed

levels which represent, on a sliding scale, the seriousness of the breach; the

more serious the breach, the higher the level. For penalties imposed on firms

there are the following five levels:

Level 1 – 0%

Level 2 – 5%

Level 3 – 10%

Level 5 – 20%

6.8.
In assessing the seriousness level, the Authority takes into account various

factors which reflect the impact and nature of the breach, and whether it was

committed deliberately or recklessly.

6.9.
The Authority considers that the following factors are relevant:

Impact of the breach

(1)
Moorhouse caused a significant risk of loss to individual customers, in

particular to those customers who were subject to a discrepancy between

risk data provided by them and risk data upon which Moorhouse quoted

and arranged insurance cover and, as a result, may not have been able to

successfully claim on their policies. However, the Authority notes that

there is no evidence of unsuccessful claims as a result of data

discrepancies caused by Moorhouse during the Relevant Period.

(2)
The lack of information provided to customers about the key product

limitations and exclusions meant customers may have been unable to

determine whether the product matched their needs and demands and

may have prevented them from making informed decisions prior to

purchasing the CV Add-on product.

(3)
There is no evidence of Moorhouse benefitting from its breaches of

Principles 3 and 7.

Nature of the breach

(1)
The breaches revealed a systemic weakness in Moorhouse’s internal

controls for most of the Relevant Period. From January to August 2012,

Moorhouse did not monitor sales calls in its commercial vehicle business.

Apart from that Moorhouse’s controls focused on sales skills and operated

in an environment of inadequate MI and governance arrangements.

(2)
As far as Moorhouse’s breach of Principle 7 is concerned, the Authority has

taken into account that Moorhouse was not under an obligation to explain

all contractual terms during telephone calls.

Whether the breaches were deliberate or reckless

(1)
The Authority has not found that Moorhouse acted deliberately or

recklessly in the context of the breaches of Principles 3 and 7.

6.10.
Taking all of these factors into account, the Authority considers the seriousness

of the breach to be level 3 and so the Step 2 figure is 10% of £2,276,701.

6.11.
Step 2 is therefore £227,670.

Step 3: mitigating and aggravating factors

6.12.
Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2 to take into account

factors which aggravate or mitigate the breach.

6.13.
The Authority considers that the following factors aggravate the breach:

(1)
Moorhouse did not take steps of its own initiative to identify customers

who may have suffered detriment and offer them compensation.

(2)
In its Retail Conduct Risk Outlook 2012 released on 13 March 2012 the

Authority identified add-ons in general insurance as an emerging risk. The

Authority warned that firms might incentivise staff to pressure sell or to

automatically include the add-on without explaining the cover properly or

that it is optional. Despite that warning, which came only two and a half

months into the Relevant Period, Moorhouse did not review its sales

processes to ensure compliance with the Authority’s rules and Principles or

ensure that it had systems and controls in place to mitigate the risks

associated with the sales of add-on products.

6.14.
The Authority considers that the following factor mitigates the breach:

(1)
Moorhouse co-operated fully with the Authority’s investigation. Moorhouse

voluntarily ceased the selling of add-on products while it made

enhancements to its systems and processes to the Authority’s satisfaction.

6.15.
Having taken into account both the aggravating and mitigating factors, the

Authority considers that there should be no change to the Step 2 figure.

6.16.
Step 3 is therefore £227,670.

Step 4: adjustment for deterrence

6.17.
Pursuant to DEPP 6.5A.4G, if the FCA considers the figure arrived at after Step 3

is insufficient to deter the firm who committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the

penalty.

6.18.
The Authority considers that the Step 3 figure of £227,670 represents a

sufficient deterrent to Moorhouse and others, and so has not increased the

penalty at Step 4.

6.19.
Step 4 is therefore £227,670.

Step 5: settlement discount

6.20.
Pursuant to DEPP 6.5A.5G, if the Authority and the firm on whom a penalty is to

be imposed agree the amount of the financial penalty and other terms, DEPP 6.7

provides that the amount of the financial penalty which might otherwise have

been payable will be reduced to reflect the stage at which the Authority and the

firm reached agreement.

6.21.
The Authority and Moorhouse reached agreement at Stage 1 and so a 30%

discount applies to the Step 4 figure.

6.22.
Step 5 is therefore £159,300.

6.23.
The Authority therefore imposes a total financial penalty of £159,300 on

Moorhouse for breaching Principles 3 and 7.

7.
PROCEDURAL MATTERS

Decision maker

7.1.
The decision which gave rise to the obligation to give this Notice was made by

the Settlement Decision Makers.

7.2.
This Final Notice is given under, and in accordance with, section 390 of the Act.

Manner of and time of Payment

7.3.
The financial penalty must be paid in full by Moorhouse to the Authority no later

than 6 May 2015, 14 days from the date of the Final Notice.

If the financial penalty is not paid

7.4.
If all or any of the financial penalty is outstanding on 7 May 2015 the Authority

may recover the outstanding amount as a debt owed by Moorhouse and due to

the Authority.

7.5.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this notice relates. Under those

provisions, the Authority must publish such information about the matter to

which this notice relates as the Authority considers appropriate. The information

may be published in such manner as the Authority considers appropriate.

However, the Authority may not publish information if such publication would, in

the opinion of the Authority, be unfair to you or prejudicial to the interests of

consumers or detrimental to the stability of the UK financial system.

7.6.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

7.7.
For more information concerning this matter generally, contact Rebecca Irving

(direct line: 020 7066 1424) at the Authority.

Head of Department
Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

1. STATUTORY PROVISIONS

1.1.
Pursuant to sections 1B and 1C of the Act, one of the Authority’s operational

objectives is securing an appropriate degree of protection for consumers.

1.2.
Pursuant to section 206 of the Act, if the Authority considers that an authorised

person has contravened a requirement imposed on it by the Act, it may impose

on that person a penalty in respect of the contravention of such amount as it

considers appropriate.

2. REGULATORY PROVISIONS

2.1.
In exercising its power to impose a financial penalty, the Authority has had

regard to the relevant regulatory provisions published in the Authority’s

Handbook. The main provisions that the Authority considers relevant are set out

below.

Principles for Businesses (Principles)

2.2.
Principle 3 (Management and controls) states that:

“A firm must take reasonable care to organise and control its affairs

responsibly and effectively with adequate risk management systems”.

2.3.
Principle 7 (Communications with clients) states that:

“A firm must pay due regard to the information needs of its clients, and

communicate information to them in a way which is clear, fair and not

misleading”.

Decision Procedure and Penalties Manual (DEPP)

2.4.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the

Authority’s statement of policy with respect to the imposition and amount of

financial penalties under the Act.

Enforcement Guide (EG)

2.5.
The Enforcement Guide sets out the Authority’s approach to taking disciplinary

action. The Authority’s approach to financial penalties is set out in Chapter 7 of

the Enforcement Guide.