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FSA fines Unat for call center compliance failings

The UK Financial Services Authority has fined Unat Direct Insurance Management GBP640,000 for failings relating to a lack of effective control and oversight over its appointment of call centers.

Unat – an indirect, wholly owned subsidiary of American International Group (AIG) – used nine call centers to sell general insurance products mainly personal accident policies underwritten by another AIG group company.

Unat had a procedure in place to check whether call centers were authorized by the Financial Services Authority (FSA), the extent of their compliance resources and their processes for compliance monitoring and data security. However, the firm failed to prevent its staff from instructing the call centers to start selling to consumers before the due diligence process had been completed.

Furthermore, senior management did not receive adequate management information to enable them to satisfy themselves that the call centers were suitable to carry out insurance sales.

This lack of effective control and oversight meant Unat did not carry out an acceptable level of due diligence before the call centers began selling. In one case, Unat had not completed its due diligence over 250 days after the call centre had begun selling.

In another case, a call center sold insurance when it was not authorized by the FSA to do so. While Unat’s compliance team identified concerns about this call center’s regulatory status at an early stage, Unat failed to resolve these concerns and the unauthorized call center continued to sell around 4,000 policies to consumers over a period of six months prior to it becoming FSA authorized.

Between January 14, 2005 and March 22, 2007, over 150,000 insurance products were sold though the nine call centers. Unat ceased all sales of general insurance through call centers on March 22, 2007, pending the outcome of a review. Unat has improved its systems and controls following the recommendations in the review.

Since the discovery of these issues, Unat has been working with the FSA to ensure that no customer has suffered loss by putting in place a comprehensive restitution package. Unat received a 20% discount for settling in stage two of the FSA’s executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of GBP800,000 on Unat.