FSA fines Sun Life Assurance Company of Canada £600k (Oct 2012)

- by Kelly Richards

Life insurance is a tricky area of the financial world, and thus one that needs regulating. When consumers opt to pay into a life insurance scheme, they hope to protect the welfare of their families in the event of their death. Much of the time, the people, who buy these policies, are the main breadwinner of the household. That is to say that without them, their families would not be able to cover the cost of the household mortgage or other payments. The policies should offer affordable cash payment schemes to consumers.

Over the last ten years, these types of policies have become more popular than ever. Consumers now understand the financial burden that a death can cause. When a person dies, it puts a massive strain on the people around them. Of course, there is the emotional trauma that an event like this one causes, but there are also monetary problems that people face. Nobody wants to leave their loved ones in a poor financial position. That in itself is an enormous worry for people who reach a certain age. That is why people tend to buy policies that claim to protect their finances.

Aside from offering policies, many insurers also have a financial advice branch to their firm. That means that their business model includes a team of financial advisers. When consumers need advice about their pension or savings, they can turn to their insurance company to get it. That means that people should have access to the information that they need. When people opt to get short term loans, it is crucial that they understand the terms of their agreement. That is just the type of advice they can seek from a financial firm. It is paramount that the regulators do their part to protect the information that people get.

Who are the regulators?

Until 2013, there was just one regulator who served the UK. The Financial Services Authority (FSA) spent an extended period ensuring the protection of finances. After 2013, two bodies (the FCA and PRA) took the reigns. They carry the same level of responsibility as the original watchdog. When a company fails to support its customers, these regulators must step in and rectify the situation. The parties regularly publish reviews of financial services so that they can keep track of each company. Their efforts to ensure that there is a level of integrity in the services are ever-changing and growing.

Cashfloat’s compliance team continue to produce lessons learned from famous FCA cases. We believe that by observing financial misconduct in the UK, we can better ourselves as a financial institution. Today, we will take a look at the 2012 case of the Sun Life Assurance Company of Canada. In this instance, the FSA had to intervene to ensure that the company’s transactions were legitimate. After that, there were a great number of developments, which led to a significant fine.

The case of Sun Life Assurance Company of Canada

The Sun Life Assurance Company of Canada Limited operates under the name Sun Life Financial of Canada. The company is well-known in the UK as one of the country’s leading life insurance firms. As an affordable lender, it is vital that the company follows the regulator’s rules. Without proper knowledge of these guidelines, there is no way that the firm can best serve its clients. Recently, a problem arose with one of the company’s ‘with-profits’ funds. The fund itself held a massive 114,000 policies. It also had £1.2 billion by way of other assets, including shares. As you might imagine, the fund was quite significant to the company. The officials should have done everything they could to protect the finances of the fund.

Problems with the company’s reviews

Each fund has a committee, who should review all the transactions. That is the first step of a vital two-part process. The second step involves the board of directors. The company directors should sign-off any transactions that the company makes. Without these two steps, it is unclear whether a payment is safe or not. On two occasions, Sun Life Financial of Canada officials failed to go through this process. That could have meant massive losses for the company, in the long run. One of the transactions took place in 2008, and the other was in 2009. At these points, the staff should have followed the proper procedures.

First warning (2007)

Before these errors happened, the FSA was already aware of Sun Life Financial of Canada. They had given a warning to the CEO of the company explaining what the proper processes should be. That means that the company directors were more than aware of how they should deal with large transactions. At this time, a responsible lender would have reviewed the company transactions. They should have been thorough with their policies and ensured that everything was up to scratch. Unfortunately, the company CEO did not take the proper steps to increase the security of their funds.

Main review (2010)

In 2010, the FSA launched a review of Sun Life Financial of Canada. The findings of the review were conclusive. It proved that the company had not done all it could to ensure the security of transactions. The regulator published a policy statement relating to this issue in 2012. The company leaders should have done more to ensure that they followed the proper processes. Their failings could have endangered the finances of many clients as well as their profits.

Fines and penalties (2012)

The Sun Life Financial of Canada complied with the review at the second stage. That entitled them to a 20% reduction of their £750,000 fine. The final penalty was a £600,000 fine, which the company had to pay in full. The FSA deemed the transactions of the company to be “unclear and inadequate”. They believed that the company risked their financial security when they failed to follow the rules. Despite them being aware of the guidelines, the staff at the company refused to follow them on two occasions.

Conclusion

The regulators always work to ensure that companies meet their guidelines. Through a process of thorough investigation, they determine whether transactions are secure or not. If they find that a company is ignoring the regulations, they will take action.

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About The Author
Kelly Richards
Kelly Richards is the founder of the Cashfloat blog and has been working tirelessly to produce interesting and informative articles for UK consumers since the blog's creation. Kelly's passion is travelling. She loves her job because she can do it from anywhere in the world! Whether inspiration hits her while sitting on the balcony of a French B&B, or whether she is struck with an idea in a roadside cafe in Moscow, she will always make sure that the idea comes to fruition. Kelly's insights come from her knowledge gained while completing her degree in Economics and Finance as well as from the people she meets around the world. Her motto is: Everyone you meet has something valuable to teach you, so meet as many people as you can!
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