Final Notice
FINAL NOTICE
1.
ACTION
1.1.
For the reasons given in this notice, the Authority hereby:
(a)
imposes on Mr Bowyer a financial penalty of £306,700; and
(b)
makes an order prohibiting Mr Bowyer from performing any significant
influence function in relation to any regulated activities carried on by any
authorised or exempt persons, or exempt professional firm. This order
takes effect from 5 November 2014.
1.2.
Mr Bowyer agreed to settle at an early stage of the Authority’s investigation. Mr
Bowyer 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 £438,200 on Mr Bowyer.
2.
SUMMARY OF REASONS
2.1.
On the basis of the facts and matters described below, the Authority has
concluded that Mr Bowyer failed to comply with Statement of Principle 6 of the
Authority’s Statements of Principle for Approved Persons while performing the
significant influence function of CF1 (Director) during the relevant period.
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2.2.
Mr Bowyer breached Statement of Principle 6 because he failed to exercise due
skill, care and diligence in managing the business of Swinton for which he was
responsible as a CF1 (Director). Mr Bowyer drove forward the monthly add-on
products and held particular responsibility within Swinton for their design,
development and marketing. However, he failed to ensure this was achieved in a
way that treated customers fairly. Mr Bowyer was involved in specific decisions
about the monthly add-on products and failed to recognise that the impact of
these decisions was to increase the risk that customers would be treated unfairly
in purchasing such products.
2.3.
The risk to customers was significant. During the period April 2010 to December
2011, Swinton sold approximately 1.9 million monthly add-on insurance policies.
It launched three types of monthly add-on product: personal accident insurance,
breakdown insurance and home emergency insurance. The launch of each
monthly add-on product was followed by a sharp rise in sales compared to the
previous annual or multi-year version of the product. Personal accident insurance
sales alone increased from 6,000 (for the previous multi-year product) to around
55,000 policies per month. The increase in sales was not accompanied by an
increase in the level of compliance monitoring. In its branch network, for most of
the relevant period Swinton monitored an average of 19 telephone sales of
personal accident insurance per month, representing only 0.04% of the average
number of personal accident insurance policies sold per month.
2.4.
Sales of the monthly add-on products had a significant impact on Swinton’s
profits. The firm’s operating profit was at the core of an incentive scheme for
Swinton’s directors. The structure of the scheme meant that, in effect, for every
£10 million of operating profit generated above £62.2 million in 2011, the total
bonus
payment
to
Swinton’s
participating
directors
would
increase
by
approximately £15 million. By September 2011, the estimated profit level for the
year was expected to result in a total scheme bonus payment of approximately
£90 million.
2.5.
This incentive scheme was designed to motivate the directors to increase the
value of the firm. Mr Bowyer was significantly motivated by the scheme and, as
Marketing Director, was heavily involved in implementing a business strategy to
maximise the operating profits of Swinton in 2011. Mr Bowyer’s role in designing,
developing and marketing the monthly add-on products was integral to the
successful delivery of this strategy.
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2.6.
However, in delivering that strategy, Mr Bowyer encouraged a culture within the
firm that prioritised sales and put at risk the fair treatment of consumers. Mr
Bowyer failed to understand that the risk of unfair treatment of customers might
stem from the culture of the firm itself, not just the customer transactions it
entered into. He did not recognise that he had a personal responsibility to
consider TCF in every element of his role as CF1.
2.7.
As a consequence of these matters, the Authority has concluded that Mr Bowyer
failed to exercise due skill, care and diligence in managing the business for which
he was responsible in his accountable function (CF1). The lack of competence
demonstrated by Mr Bowyer leads the Authority to conclude that he is not a fit
and proper person to perform significant influence functions in relation to
regulated activities carried on by an authorised person, exempt person or exempt
professional firm, and that he should be prohibited from doing so.
2.8.
The Authority has therefore decided to impose a financial penalty on Mr Bowyer in
the amount of £306,700 pursuant to section 66 of the Act and make an order
prohibiting Mr Bowyer from performing any significant influence function pursuant
to section 56 of the Act.
2.9.
This action supports the Authority’s regulatory objective of securing an
appropriate degree of protection for consumers and is consistent with the
importance placed by the Authority on the accountability of senior management in
the operation of their business.
3.
DEFINITIONS
3.1.
The definitions below are used in this Final Notice.
(a)
“ADB” means Swinton’s accidental death benefit insurance;
(b)
the “Act” means the Financial Services and Markets Act 2000;
(c)
the “Authority” means the body corporate previously known as the
Financial Services Authority and renamed on 1 April 2013 as the Financial
Conduct Authority;
(d)
the “Compliance Board” means the subsidiary board of Swinton’s executive
board, responsible for identifying, reviewing and addressing the key
compliance indicators of Swinton’s business, identifying key compliance
issues and deciding on appropriate corrective action;
(e)
the “Compliance Department” means Swinton’s Legal and Compliance
Department;
(f)
the “core products” means Swinton’s motor or home insurance products;
(g)
“DEPP” means the Decision Procedure and Penalties Manual section of the
Handbook;
(h)
the “DSS” means the directors’ share scheme in operation at Swinton
during the relevant period;
(i)
“EG” means the Enforcement Guide part of the Handbook;
(j)
the “Handbook” means the Authority’s Handbook of rules and guidance;
(k)
“HEP” means Swinton’s home emergency insurance;
(l)
“LTV” means lifetime value, which was the method Swinton used to
account for sales of the monthly add-on products;
(m)
“MI” means management information;
(n)
the “monthly add-on products” means the monthly add-on products sold
by Swinton. These included HEP, PA and SBI;
(o)
“PA” means Swinton’s personal accident insurance;
(p)
the “PPG” means Swinton’s Product and Pricing Group;
(q)
“PPI” means payment protection insurance;
(r)
the “relevant period” means the period between 1 January 2010 and 12
December 2011;
(s)
“SBI” means Swinton’s breakdown insurance;
(t)
the “Statements of Principle” means the Statements of Principle and Code
of Practice for Approved Persons;
(u)
“Swinton” means Swinton Group Limited;
(v)
“TCF” means the Authority’s Treating Customers Fairly Initiative, which is
based on Principle 6 of the Authority’s Principles for Businesses. Principle 6
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requires firms to pay due regard to the interests of their customers and
treat them fairly; and
(w)
the “Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).
4.
FACTS AND MATTERS
4.1.
Swinton is a large general insurance intermediary which has been authorised by
the Authority since 14 January 2005.
The monthly add-on products
4.2.
During the relevant period, Swinton sold the monthly add-on products to existing
customers with core products, being home insurance or motor insurance, and to
new customers alongside these core products. It migrated existing customers
from annual or multi-year PA, SBI and HEP policies to the monthly add-on
products as their existing policies came up for renewal. It also sold the monthly
add-on products on a stand-alone basis to customers who had purchased core
products through other brokers.
4.3.
Customers were offered free cover for an initial period of three or four months
before monthly premiums became payable and were automatically taken from
their bank accounts if they did not cancel. Customers were not tied into annual or
multi-year contracts and could cancel their policies at any time without incurring
charges.
4.4.
Swinton launched the monthly PA product in April 2010. PA was designed to
provide cover for accidental physical injury or the disappearance of an insured
person who was presumed dead as a result of accidental injury. PA offered three
levels of cover, which could be extended to include the insured person’s partner
or unmarried dependent children. The monthly premiums for PA ranged from
£7.98 to £17.99.
4.5.
In February 2011, Swinton launched its SBI monthly add-on product. SBI was
designed to provide cover for motor breakdown assistance. SBI offered four levels
of cover for vehicle recovery within the UK and Europe. The monthly premiums
for SBI were determined according to the specific product options selected.
4.6.
Swinton launched its monthly HEP add-on product in July 2011. HEP was
designed to provide cover in cases where a skilled tradesman was required to
attend and repair a home emergency. HEP offered two levels of cover (Standard
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and Gold) which provided different amounts of reimbursements for repairs. The
monthly premiums for HEP were £4.99 or £6.99 respectively.
4.7.
During the relevant period, Swinton sold the monthly add-on products on a non-
advised basis to customers face to face in Swinton’s high street branches (which
at that time numbered more than 500) and by telephone from its branches and
nine call centres. Swinton changed its sales processes from advised to non-
advised over the course of the period November 2009 to February 2010.
4.8.
Swinton used a computer software package for both telephone and face to face
sales to capture customer details and search for quotes on the core products. The
computer software package prompted sales executives to introduce the monthly
add-on products during sales of the core products and provided links to the
relevant sales scripts.
4.9.
Due to the method Swinton used to account for them, sales of the monthly add-
on products were particularly profitable for Swinton in the year the sale was
made. Swinton accounted for the monthly add-on products on a LTV basis. This
meant that a notional value for the lifetime of the product was ascribed to its sale
and accounted for in the month of sale. This value was based on an actuarial
calculation arrived at by making various assumptions about the premium income
and cancellation rates applicable to each product.
4.10. During the period April 2010 to December 2011, Swinton sold approximately 1.9
million PA, SBI and HEP monthly add-on products. Sales of the PA monthly add-
on product alone averaged around 55,000 policies per month during this period.
In September 2011, Swinton estimated that the monthly PA and SBI products
were due to generate approximately £43.5million of a forecast total operating
profit figure of £110.4million in 2011.
4.11. On 16 July 2013, the Authority fined Swinton £7,380,400 for breaching its
Principles for Businesses in respect of its sales of monthly add-on products
between April 2010 and April 2012. The fine was reduced by 30% from
£10,543,500 as Swinton agreed to settle at an early stage of the investigation.
4.12. Many of the Authority’s findings about the mis-selling of the monthly add-on
products reflected similar failings found at Swinton previously in relation to the
mis-selling of PPI. On 28 October 2009, the Authority had fined Swinton £770,000
for breaching its Principles for Businesses during the period December 2006 to
March 2008 in relation to its sale of PPI.
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Mr Bowyer’s roles and responsibilities
4.13. Mr Bowyer joined Swinton as Marketing Director on 12 December 2005 and was
approved to perform CF1 from 18 April 2006. On joining, he was told that his role
was to generate profit for the business and “think the unthinkable” in terms of
generating marketing ideas and initiatives. He was told he would be supported by
a robust compliance framework. He was also told he needed to be an approved
person and declared to the Authority he was competent as such. As one of
Swinton’s CF1 directors, Mr Bowyer was not required to sit on Swinton’s
Compliance Board nor was he allocated compliance oversight responsibilities.
What he did not understand was that, as a CF1, he had a personal responsibility
which he could not abrogate to ensure he considered and embedded TCF into
every area of his work.
4.14. Mr Bowyer was Director of Marketing at Swinton during the relevant period and
held a number of roles that gave him responsibility for ensuring the design,
development and sales process of the monthly products complied with regulatory
standards. As leader of the Product and Pricing Group, he was involved in the
development of each of PA, SBI and HEP, including contributing to decisions on
pricing and scripts. As a member of the PA/ADB subgroup, he was involved in
managing the roll-out of PA (as well as ADB). Both these groups had
responsibility for considering TCF and compliance issues in relation to the monthly
add-on products and ensuring that there were final TCF/compliance sign-offs from
the Compliance department.
4.15. Mr Bowyer was also the Project Sponsor for PA, SBI and HEP. As Project Sponsor,
he was responsible for all aspects of the product development process, including
those relating to compliance and TCF. He also shared responsibility with others for
reviewing and approving sales scripts.
Development and scripting of monthly add-on products
4.16. Mr Bowyer played a central role in introducing the concept of the monthly add-on
products to Swinton, and in guiding their development, launch and sales process.
Introduction of the monthly add-on policies
4.17. In January and February 2010, Mr Bowyer was requested by the Executive Board
to investigate the benefits of changing the structure of Swinton’s ADB and PA
products from annual or multi-year products to monthly products. In doing so, Mr
Bowyer received advice from Swinton’s Compliance department that there would
be fewer compliance requirements for scripting and web presentation and he
perceived advantages in this.
4.18. Mr Bowyer was also attracted to the accounting treatment which could be applied
to the monthly add-on products and the benefits the LTV accounting method
would have for maximising operating profits in 2011.
4.19. He presented the monthly products in a paper to Swinton’s Audit Committee in
March 2010 and drove forward the monthly add-on products.
Failure to identify risk of assumptive selling in PA script
4.20. Prior to the launch of PA, Mr Bowyer was involved in reviewing the proposed draft
scripts. The draft sales scripts prompted sales executives to introduce the
monthly add-on products at the end of the sale of a core product with a linking
phrase, “with that you are also entitled to three months free PA cover...” The
draft scripts did not require sales executives to clarify that the monthly PA
product was separate from the core product and could be declined, nor did they
prompt the sales executives to ask customers specifically whether they wanted
the product.
4.21. Concerns were expressed within Swinton that the draft was insufficiently clear
about the optionality of PA and that the offer of a free period might heighten the
risk that Swinton was taking advantage of customer apathy. However, Mr Bowyer
failed to identify that the draft script presented PA as a benefit of the core policy,
rather than a separate, optional product and went on to approve this draft.
4.22. Mr Bowyer should have perceived that the draft scripts he approved gave rise to
the risk that sales could be made without customers giving informed consent,
making an informed choice to purchase the product and in circumstances where
they did not understand that PA was optional. He should have been particularly
alert to the risk associated with assumptive selling as a similar failing had been
identified by the Authority in the Final Notice to Swinton in 2009 in relation to
4.23. This risk crystallised. Soon after the product launch, Mr Bowyer was told that
customers had said they had not known they were purchasing PA and did not
always understand what they were purchasing. In some cases, the product had
been set up for customers without it even being mentioned to them. The concern
was raised with Mr Bowyer that customers might not be mentally engaged with
the PA purchase because it was sold on the basis that it was free.
4.24. Mr Bowyer also received transcripts of PA telephone sales calls, details of very low
claims and copies of the Compliance Board reports containing MI about PA sales,
all of which ought to have highlighted to him that there were problems with sales
of the PA product. He should have recognised PA was being sold as if it was part
of the core product and was being presented as an added benefit rather than an
additional product and taken steps to ensure this was not repeated in SBI or HEP
sales scripts.
4.25. Over a year later, in November 2011, Swinton was still receiving complaints from
customers that they were not aware they had purchased PA. Mr Bowyer’s failure
to recognise the problems with the way in which PA was being sold led to a
heightened risk of customer detriment throughout the relevant period and a risk
that similar problems would occur with sales of HEP and SBI.
PA payment reminder letters
4.26. In August 2010 Swinton started issuing letters to customers to remind them that
the free period for PA was coming to an end and that the first monthly payment
would soon be taken from their accounts. In the November 2010 PA/ADB group
meeting, concerns were raised that cancellation rates were six times higher where
the letter was sent. It ought therefore to have been clear to Mr Bowyer that the
letters prompted customers to review their purchasing decision and encouraged
them to make an informed choice about whether to continue with PA. This
suggested there was a risk that customers were not aware they had bought the
product until they received the payment reminder letters, or that customers may
not want or need the product.
4.27. Swinton continued to send payment reminder letters until March 2011 but
reduced the number of recipients to a restricted sub-set of customers. From June
2012 Swinton revised this decision and started sending reminder letters to all PA,
HEP and SBI customers.
4.28. Having been told that cancellation was six times more likely with a letter, that
customers had complained about not knowing they had purchased the product
and about the risk the scripts were not making optionality clear, Mr Bowyer
should have recognised that the PA sales process was at risk of causing customer
detriment through assumptive selling. Mr Bowyer should have been particularly
alive to the risks of assumptive selling from the Final Notice issued to Swinton in
2009 for PPI failings.
The development of HEP and SBI
4.29. Swinton launched its monthly SBI and HEP products in February 2011 and July
2011 respectively. Mr Bowyer played a key role in the development of both
products. He was Project Sponsor for both products, was involved in scripting and
shared responsibility for ensuring that Swinton treated customers fairly in the
development of these products.
Failure to identify assumptive selling risks with HEP
4.30. HEP was launched in July 2011 with two levels of cover: Gold and Standard. Mr
Bowyer was a key proponent of Swinton offering two levels of cover to offer
customers as it increased customer choice. However, Mr Bowyer was also aware
that being able to offer the cheaper “Standard” cover would mean Swinton had a
second chance to make the sale, in the event that customers rejected the initial,
more expensive “Gold” cover.
4.31. In the development of the two HEP levels, Mr Bowyer was told that Swinton’s
sales network was concerned about offering two levels of cover. In particular, that
it might lead to sales executives failing to establish a customer need for the
higher level cover. There was a risk of mis-selling where sales executives
assumed customers would require Gold HEP and did not make it clear up front
that they could choose Standard HEP.
4.32. Mr Bowyer took the view that, provided the Compliance Department signed off
the two cover levels, he could be assured the product was compliant. However, as
CF1, the Project Sponsor and leader of the PPG, his responsibility extended
beyond this. He should have been aware that the risk of assumptively selling Gold
HEP was likely to crystallise, in particular, because he was aware from information
he had received from the business about this risk and his own knowledge of the
Final Notice issued to Swinton in September 2009 for PPI failings which referred
to the risks of assumptive selling.
4.33. Mr Bowyer, however, failed to address this risk in the scripts that he reviewed
and the script that went live in July 2011 required sales executives to ask
questions leading the customer towards Gold HEP and only sell Standard HEP if
the customer objected to purchasing Gold.
4.34. Mr Bowyer therefore failed to recognise that there was a risk Swinton was
assuming the customer would want Gold HEP, rather than permitting the
customer to make an informed choice, and that this sales process might increase
the risk that Swinton was not treating its customers fairly. In focussing on sales
of Gold HEP and the potential returns for the business, and in neglecting to
consider the potential TCF impact, Mr Bowyer encouraged a culture which
focussed on sales and put at risk the fair treatment of customers.
4.35. Swinton sold significantly more Gold HEP policies than Standard. By September
2011 sales of Gold level HEP accounted for 90% of all HEP sales.
Failure to identify risks with tacit migration of HEP customers
4.36. Prior to the launch of HEP, Swinton considered how to tacitly migrate existing
customers with annual policies to the new monthly version of HEP. The
Compliance Department was of the view that customers had to be migrated to
Standard HEP as this product and its benefits more closely matched those of the
existing annual cover.
4.37. Mr Bowyer was aware that tacitly migrating to customers to Gold HEP, rather
than Standard HEP, would boost Swinton’s 2011 profits by £2-3 million and he
was in favour of tacitly transferring customers to Gold HEP. The Compliance
Department raised concerns about this because Standard HEP best matched the
cover annual HEP customers had bought and was significantly cheaper than Gold
HEP.
4.38. In order to circumvent the compliance issue, Mr Bowyer endorsed a strategy to
cut the benefits offered by Standard HEP, without reducing the price, so that
Standard HEP offered a lower level of cover than the annual product. The
Compliance Department subsequently agreed that the best option was to migrate
customers to Gold HEP because this was now the most similar product.
4.39. Whilst Mr Bowyer did not himself suggest the strategy of reducing the cover
offered by Standard HEP, he was integral to the design and pricing of the product.
Had Mr Bowyer objected either to the reduction in Standard HEP or to the tacit
migration to Gold HEP, it is unlikely it would have proceeded.
4.40. Mr Bowyer should have objected because Swinton was at risk of assumptively
migrating customers to a product that offered more cover than the annual
product they had previously selected, when there was a cheaper option available
in the form of Standard HEP that customers might prefer. He failed to recognise
that he had an obligation to consider whether this strategy was in customers’
interests. He considered that it was for Swinton’s Compliance Department and
Compliance Board to ensure the preferred migration strategy was compliant.
However, he did not appreciate that as a CF1, as well as Project Sponsor and the
director accountable for product development, he also bore a responsibility to
ensure customers were being treated fairly.
4.41. Whilst overseeing the reduction in benefits of Standard HEP product, Mr Bowyer
commented on the irony of making a product worse in order to meet TCF
obligations. The changes to Standard HEP had absolutely nothing to do with TCF.
The purpose was to create a way to generate additional profits without raising a
red flag with the Compliance Department. His lack of attention or focus on TCF
inadvertently encouraged others to deprioritise concerns that the sales process
might be confusing for customers or might increase the risk of assumptive selling.
Failure to identify risks to customers in the development of SBI
4.42. Swinton launched SBI in February 2011. Mr Bowyer, as Project Sponsor, oversaw
the development of SBI and intended for the product to be sold to a wide
customer base, including those who already had breakdown cover with another
provider.
4.43. Not all of the scripts used during the relevant period prompted sales executives to
ask if the customer already had breakdown cover. There was a risk, therefore,
that a customer might buy SBI without the chance to make an informed choice
about whether to buy a second breakdown product.
4.44. Where scripts did include a question about existing cover, they prompted sales
executives to push ahead with the sale even where the customer confirmed they
had existing breakdown cover.
4.45. Mr Bowyer considered that SBI was an excellent proposition for customers but
failed to recognise the potential detriment to customers arising from purchasing a
policy covering the same risks as one they already owned.
4.46. In June 2011, Mr Bowyer was informed that the terms and conditions of
Swinton’s monthly SBI product contained an exclusion clause which prevented
customers from recovering costs under the policy if they had pre-existing
breakdown insurance.
4.47. The exclusion clause gave rise to the risk that customers who already had
breakdown insurance with another provider would be precluded from recovering
costs under SBI. Between February 2011 and the end of May 2011, Swinton sold
approximately 200,000 policies with this exclusion clause. There was a risk
therefore that Swinton had been selling customers a product they might not be
able to use.
4.48. Mr Bowyer had designed the product to be competitive with existing products on
the market and to be sold to customers who had an existing product. As Project
Sponsor and CF1, he should have ensured checks were made ethat the
underwriter’s policy would cover claims where a customer already had a similar
product, before any sales of SBI were made. The exclusion clause had been in the
annual SBI policy since it was first sold by Swinton in 2001.
4.49. The dual policy exclusion clause was brought to Mr Bowyer’s attention in June
2011. His immediate response was to ensure sales were not disrupted and that
no changes were made to SBI scripts or the sales process without his permission.
His focus was on the impact that an interruption to sales could have on profits.
4.50. Mr Bowyer’s reaction demonstrates that he had failed to recognise the TCF
implications of the exclusion clause: consumers may have paid for a product they
might not be able to use. In failing to recognise the potential detriment to
consumers and focussing on sales, Mr Bowyer’s reaction also encouraged those
he dealt with to focus on the impact on profits, rather than on customers.
4.51. The policy underwriter was subsequently asked by Swinton’s Compliance
Department to remove the exclusion clause from SBI policy documents and
policies sold subsequently did not contain the clause. Swinton continued to sell
the product to customers with existing breakdown cover, without the risk of
invalidating the cover. Having been told about the dual exclusion clause Mr
Bowyer took no steps to identify how many customers might have been affected
or to issue revised policy terms to existing customers.
Mr Bowyer’s influence on culture at Swinton
4.52. Mr Bowyer, as Swinton’s Marketing Director, was integral to the successful
delivery of the agreed strategy to maximise Swinton’s 2011 profits. The aim was
to increase the value of the company and to deliver significant operating profits in
2011. The DSS in operation during the relevant period meant that high operating
profits in 2011 would lead to a significant bonus for Mr Bowyer.
4.53. The incentive offered by the DSS was effective. Mr Bowyer was motivated by the
bonus he potentially stood to earn as a result of maximising these profits.
However, the way in which Mr Bowyer contributed to the successful delivery of
high profits in 2011 encouraged and fostered a culture at the firm in which profits
were given precedence over the fair treatment of customers.
4.54. Examples of where his drive impacted on decisions taken by Swinton in
developing the monthly add-on products are set out in the preceding paragraphs.
However, there were other suggestions, ideas and innovations made by Mr
Bowyer which did not result in an impact on sales or process but which
nevertheless influenced culture at the firm.
4.55. For example, in October 2010, Mr Bowyer proposed tacitly moving all customers
holding annual PA policies to the monthly PA product prior to their annual contract
coming to an end. He proposed that Swinton do this without seeking customers’
express permission to change to a monthly add-on product. He described the
advantages of this idea to a colleague as being “worth millions and potentially
therefore a huge sum to each of us… [the participating directors]”.
4.56. Mr Bowyer failed to recognise that this would not only be a breach of the existing
contract Swinton had with its PA customers, but would also be assumptively
selling PA to customers who might not have wanted an open-ended policy, and
might not even have been aware they had purchased a new policy. Either position
would have given rise to a serious risk of customers not being treated fairly.
4.57. Mr Bowyer’s proposal was not implemented. Swinton did not transfer customers
to monthly PA until the point of renewal, i.e. when their annual policy was due to
expire. Mr Bowyer’s proposal, however, demonstrates his focus on 2011 profits
and the DSS bonus and his lack of understanding about treating customers fairly.
In presenting and seeking to persuade others with proposals such as this one, he
inadvertently encouraged a culture whereby profits could be pursued at the
expense of treating customers fairly.
Mr Bowyer’s influence outside his immediate sphere of responsibility
4.58. Mr Bowyer was perceived within Swinton as one of the key individuals driving
Swinton’s business strategy for maximising profits in 2011. He had no specific
responsibility for driving volumes, setting sales executives’ targets or designing
incentive schemes in Swinton. However, in practice Mr Bowyer used his position
as the Marketing Director and CF1, and his involvement in the design and
development of the monthly products, to exercise influence over these areas.
4.59. For example, Mr Bowyer used his role as leader of the PPG to emphasise the
importance of sales volumes and targets, but without engendering any positive
regard for TCF amongst the group. The PPG was very influential in the commercial
input it had into Swinton’s business strategy and was involved in all aspects of
the development of the monthly add-on products.
4.60. It was particularly important for a TCF culture to be embedded at Swinton after it
was fined in 2009 for a failure to treat customers fairly over PPI policies. The
combination of Mr Bowyer’s lack of understanding of what treating customers
fairly meant and his drive for profit resulted in him encouraging a culture in which
sales were perceived to be the overriding priority, to the potential detriment of
the fair treatment of customers.
4.61. Examples of Mr Bowyer seeking to influence those around him in this way include
the following:
(a)
in January 2010 Mr Bowyer pushed for annual PA sales targets to be
increased. Then in March 2010, he sought to have sales targets increased
for the monthly PA product. He was subsequently warned that sales teams
were overloaded with new initiatives and concerns were raised about mis-
selling. Despite this, Mr Bowyer pushed forward with launching the
monthly PA product. This risk crystallised and Mr Bowyer (together with
the other directors) were subsequently told about significant numbers of
non-compliant PA sales;
(b)
as Project Sponsor, Mr Bowyer sponsored a competition to win a trip to
New York for those individuals who achieved the highest penetration
percentage of PA sales. He told those sales managers who thanked him for
the trip that PA should be a mandatory conversation with every customer;
(c)
soon after the launch of PA, Mr Bowyer proposed introducing a joint PA
product. Again, concerns were raised about overloading sales teams. The
pilot for joint PA was subsequently delayed as a result of these concerns.
Mr Bowyer was angry about the delay, expressing in an email to a
colleague, “Next year’s just too important to us not to be taking these
opportunities”. This exemplifies his focus on 2011 operating profits and
demonstrated that he had not understood the potential consequences for
customers of too much pressure being applied to sales teams;
(d)
in September 2010, he sought higher targets for sales of PA and suggested
sales executives should be asked to sell PA 100% of the time. In response
to concerns that increasing targets would encourage mis-selling he
responded, “the financial benefits of getting more PA volume outweigh the
disadvantages of losing some of the other stuff”, by which he meant that
PA sales should be focused on at the expense of other initiatives; and
(e)
in November 2010, he again encouraged sales executives to target one PA
sale per sales executive per day and asked for higher sales in 2011.
4.62. The pressure created by the culture manifested itself at all levels of the
organisation. Sales executives leaving the firm reported that they felt pressurised
to sell a product the customer did not want, that sales targets were unrealistic,
that they were suffering overload and that the situation was another PPI waiting
to happen. Senior management also expressed concern about the pressure on
staff, the risk of mis-selling where too many new initiatives and increased targets
were imposed and had reservations about the risk presented by working to the
very tight timescales set for the monthly product launch by Mr Bowyer.
4.63. Mr Bowyer relied on the compliance framework to identify any risks in his
proposals, approach or initiatives. As a CF1 and executive director, he too held
responsibility for ensuring that his behaviour did not over-emphasise sales to the
detriment of customers.
5.
FAILINGS
5.1.
The regulatory provisions relevant to this Final Notice are referred to in Annex A.
5.2.
Mr Bowyer breached Statement of Principle 6 because he failed to exercise due
skill, care and diligence in managing the business of Swinton for which he was
responsible by virtue of his accountable function.
5.3.
Mr Bowyer, as CF1 and Project Sponsor for PA, HEP and SBI, was responsible for
designing, developing and marketing of the monthly add-on products in a way
that treated customers fairly. Mr Bowyer did not do this because he failed to
recognise that he shared responsibility for ensuring Swinton treated customers
fairly. Further, he did not understand that treating customers fairly went beyond
offering a competitive customer proposition.
5.4.
In performing his role, he encouraged a culture at Swinton in which the fair
treatment of customers was put at risk by the drive for profits.
5.5.
In designing and developing the monthly products, Mr Bowyer was involved in a
number of decisions which maximised the opportunity for profit and put at risk
Swinton’s fair treatment of customers. Mr Bowyer:
a) failed to address the risk that Swinton was selling PA to customers
without their knowledge, as the draft scripts approved by Mr Bowyer
failed to make clear that PA was a separate, optional product;
b) failed to act on another indication that PA customers were not clear
about what they had purchased, when he was told they were six times
more likely to cancel if they received a payment reminder letter;
c) in relation to HEP, was heavily involved developing a sales process that
was designed to steer customers to take out the most expensive level of
cover, without taking into account customers’ needs;
d) encouraged Swinton to sell SBI to customers who had cover elsewhere,
in circumstances where an exclusion clause was in place that prevented
customers
recovering costs
if they had pre-existing breakdown
insurance;
e) when the exclusion clause was removed from the policy documents, Mr
Bowyer continued to encourage Swinton to sell SBI to customers who
had existing breakdown cover; and
f) failed to learn lessons from Swinton’s mis-selling of PPI, and failed to
take greater care to mitigate risks that the monthly add-on products
might be similarly mis-sold.
5.6.
Mr Bowyer was clearly motivated by the DSS and integral to the successful
delivery of the business strategy to maximise profits in 2011. However, he failed
to understand that his drive to make the strategy a success contributed to the
development of a culture within the firm that was overly focussed on sales and
put at risk the fair treatment of consumers. Mr Bowyer failed to understand that
the risk of unfair treatment of customers might stem from the culture of the firm
itself, not just the transactions it entered into with its customers.
5.7.
As Swinton’s Marketing Director, he sought to promote a culture that prioritised
sales volumes through proposals he made, decisions he took, his communications
with others in the firm, without paying proper attention to the fair treatment of
customers. Mr Bowyer’s proposals were not always adopted, however his
influence on culture was felt at all levels of the organisation - from sales staff to
senior management.
5.8.
Mr Bowyer did not recognise that he had any role in embedding a culture in which
regulatory requirements and the fair treatment of customers were given due
priority. As a CF1 he should not have disregarded this important element of his
role.
6.
SANCTION
Financial penalty
6.1.
The Authority imposes a financial penalty on Mr Bowyer for breaching Statement
of Principle 6. Since the gravamen of Mr Bowyer’s failings occurred after the
changed in regulatory provisions governing the determination of financial
penalties and public censures on 6 March 2010, the Authority has applied the
provisions that were in place after that date.
6.2.
The principal purpose of a financial penalty is to promote high standards of
regulatory conduct by deterring persons who have committed breaches from
committing further breaches, helping to deter other persons from committing
similar breaches and demonstrating generally compliant behaviour.
6.3.
In determining whether a financial penalty is appropriate, the Authority is
required to consider all the relevant circumstances of a case. A financial penalty
is an appropriate sanction in this case, given the nature of the breach and the
need to send out a deterrent message.
6.4.
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 6.5B sets out the details of the five-step framework that applies in
respect of financial penalties imposed on individuals in non-market abuse cases.
Step 1: disgorgement
6.5.
Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual
of the financial benefit derived directly from the breach where it is practicable to
quantify this.
6.6.
The Authority has not identified any financial benefit that Mr Bowyer derived
directly from the breach.
6.7.
The Step 1 figure is therefore £0.
Step 2: the seriousness of the breach
6.8.
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that
reflects the seriousness of the breach. That figure is based on a percentage of
the individual’s relevant income. The individual’s relevant income is the gross
amount of all benefits received by the individual from the employment in
connection with which the breach occurred, and for the period of the breach.
6.9.
The period of Mr Bowyer’s breach was from 1 January 2010 to 12 December
2011. Mr Bowyer’s relevant income for this period was £1,992,197
6.10. In deciding on the percentage of the relevant income that forms the basis of the
Step 2 figure, the Authority considers the seriousness of the breach and chooses
a percentage between 0% and 40%. 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 individuals in
non-market abuse cases there are the following five levels:
(a)
Level 1 – 0%
(b)
Level 2 – 10%
(c)
Level 3 – 20%
(d)
Level 4 – 30%
(e)
Level 5 – 40%
6.11. 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.
6.12. DEPP 6.5B.2G(8) and (9) list factors relating to the impact and nature of the
breach by an individual. Of these, the Authority considers the following factors to
be relevant:
(a)
whether the individual made significant financial gains indirectly from the
breach (DEPP 6.5B.2G(8)(a));
(b)
the risk of loss, as a whole, caused to consumers (DEPP 6.5B.2G(8)(b));
(c)
whether the individual held a senior position at the firm (DEPP
6.5B.2G(9)(k));
(d)
the extent of the responsibility of the individual for the product or business
area affected by the breach, and for the particular matter that was the
subject of the breach (DEPP 6.5B.2G(9)(l)); and
(e)
whether the individual took at least some steps to comply with the
Authority’s rules (DEPP 6.5B.2G(9)(n)).
6.13. DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2, or 3 factors’. Of
these, the Authority considers the following factors to be relevant:
(f)
the
breach
was
committed
negligently
or
inadvertently
(DEPP
6.5B.2G(13)(d)).
6.14. 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 20% of £1,992,197.
6.15. The Step 2 figure is therefore £398,439.
Step 3: mitigating and aggravating factors
6.16. Pursuant to DEPP 6.5B.3G, at Step 3 the Authority may increase or decrease the
amount of the financial penalty arrived at after Step 2, but not including any
amount to be disgorged as set out in Step 1, to take into account factors which
aggravate or mitigate the breach.
6.17. Mr Bowyer was aware of the Authority’s concerns about mis-selling of PPI at
Swinton, as he held the position of Marketing Director at the time Swinton was
fined for mis-selling PPI. The Authority’s Final Notice in relation to PPI mis-selling
was published on 28 October 2009.
6.18. Having taken into account this aggravating factor, the Authority considers that
the Step 2 figure should be increased by 10%.
6.19. The Step 3 figure is therefore £438,282.
Step 4: adjustment for deterrence
6.20. Pursuant to DEPP 6.5B.4G, if the Authority considers that the figure arrived at
after Step 3 is insufficient to deter the individual who committed the breach, or
others, from committing further or similar breaches, then the Authority may
increase the penalty.
6.21. The Authority considers that the Step 3 figure of £438,282 represents a sufficient
deterrent to Mr Bowyer and others, and so has not increased the penalty at Step
4.
6.22. The Step 4 figure is therefore £438,282.
Step 5: settlement discount
6.23. Pursuant to DEPP 6.5B.5G, if the Authority and the individual 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
individual reached agreement. The settlement discount does not apply to the
disgorgement of any benefit calculated at Step 1.
6.24. The Authority and Mr Bowyer reached agreement at Stage 1 and so a 30%
discount applies to the Step 4 figure.
6.25. The Step 5 figure is therefore £306,797.
6.26. The Authority has therefore decided to impose a total financial penalty of
£306,700 on Mr Bowyer for breaching Statement of Principle 6.
6.27. It is appropriate and proportionate in all the circumstances to prohibit Mr Bowyer
from performing any significant influence function in relation to any regulated
activity carried out by an authorised person, exempt person or exempt
professional firm, because he is not a fit and proper person in terms of his
competence and capability.
6.28. The Authority has had regard to the guidance in Chapter 9 of EG in proposing that
Mr Bowyer be prohibited from performing functions involving the exercise of
significant influence. The relevant provisions of EG are set out in the Annex to
this Notice.
6.29. Given the nature and seriousness of the failures outlined above, Mr Bowyer’s
conduct demonstrated a serious lack of competence such that he is not fit and
proper to perform any significant influence function in relation to regulated
activities carried on at any authorised person, exempt person or exempt
professional firm. In the interests of consumer protection, it is appropriate and
proportionate in all the circumstances to impose the Prohibition Order on Mr
Bowyer in the terms set out above.
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 for Payment
7.3.
The financial penalty must be paid in four instalments by Mr Bowyer to the
Authority, as follows:
(a)
£76,675 to be paid by no later than 19 November 2014, 14 days from the
date of the Final Notice; and
(b)
£76,675 to be paid on each of 5 November 2015, 5 November 2016 and 5
November 2017.
If the financial penalty is not paid
7.4.
If any, or any part of, an instalment is outstanding on the day after it is due to be
paid to the Authority (in accordance with paragraph 7.3 above), the Authority
may recover the full outstanding amount of the financial penalty as a debt owed
by Mr Bowyer 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 Mr Bowyer 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 Rachel West
(direct line: 020 7066 0142 / fax: 020 7066 0143) of the Enforcement and
Financial Crime Division of the Authority.
………………………………………………………
Bill Sillett
Head of Department, Enforcement and Financial Crime Division
for and on behalf of the Authority
ANNEX A
RELEVANT STATUTORY AND REGULATORY PROVISIONS
1.
RELEVANT STATUTORY PROVISIONS
1.1
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include
the consumer protection objective.
1.2
Section 66 of the Act provides that the Authority may take action against a
person if it appears to the Authority that he is guilty of misconduct and the
Authority is satisfied that it is appropriate in all the circumstances to take action
against him. A person is guilty of misconduct if, while an approved person, he has
failed to comply with a statement of principle issued under section 64 of the Act,
or has been knowingly concerned in a contravention by a relevant authorised
person of a relevant requirement imposed on that authorised person.
1.3
Section 56 of the Act provides that the Authority may make an order prohibiting
an individual from performing a specified function, any function falling within a
specified description or any function, if it appears to the Authority that that
individual is not a fit and proper person to perform functions in relation to a
regulated activity carried on by an authorised person, exempt person or a person
to whom, as a result of Part 20, the general prohibition does not apply in relation
to that activity. Such an order may relate to a specified regulated activity, any
regulated activity falling within a specified description, or all regulated activities.
2.
RELEVANT REGULATORY PROVISIONS
Statements of Principle and Code of Practice for Approved Persons
2.1.
The Authority’s Statements of Principle and Code of Practice for Approved Persons
have been issued under section 64 of the Act.
2.2.
Statement of Principle 6 states:
An approved person performing an accountable significant-influence
function must exercise due skill, care and diligence in managing the
business of the firm for which he is responsible in his accountable function.
2.3.
The Code of Practice for Approved Persons sets out descriptions of conduct which,
in the opinion of the Authority, do not comply with a Statement of Principle. It
also sets out factors which, in the Authority’s opinion, are to be taken into
account in determining whether an approved person’s conduct complies with a
The Fit and Proper Test for Approved Persons
2.4.
The part of the Authority’s Handbook entitled “The Fit and Proper Test for
Approved Persons” (FIT) sets out the criteria that the Authority will consider when
assessing the fitness and propriety of a candidate for a controlled function. FIT is
also relevant in assessing the continuing fitness and propriety of an approved
person.
2.5.
FIT 1.3.1G states that the Authority will have regard to a number of factors when
assessing the fitness and propriety of a person. The most important
considerations will be the person’s honesty, integrity and reputation, competence
and capability and financial soundness.
The Authority’s policy for exercising its power to make a prohibition
order
2.6.
The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of
the Enforcement Guide (“EG”).
2.7.
EG 9.1 states that the Authority may exercise this power where it considers that,
to achieve any of its regulatory objectives, it is appropriate either to prevent an
individual from performing any functions in relation to regulated activities or to
restrict the functions which he may perform.
Financial penalty
2.8.
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 6.5B sets out the details of the five-step framework that applies in
respect of financial penalties imposed on individuals in non-market abuse cases.