Daily briefing: Wednesday - RBSI insurers fall foul of FSA

For a company that’s only a few months away from flotation, a £2.2m FSA fine on Direct Line and Churchill is not a great way to kick off the new year.
 
Investors will be asking: are there any more skeletons in the closet?
 
This will also mean that parent Royal Bank of Scotland Insurance will now have to be extra vigilant on customer service, regulation and corporate governance.
 
But, as long as there aren’t any more hiccups, the City should quickly forget and concentrate on the hard stuff, such as the company’s financial metrics.
 
Blame game

Can chief executive Paul Geddes be blamed for this transgression?
 
It took place on his watch: Geddes was parachuted in as chief executive in August 2009 and the file tampering took place in April 2010.
 
However, you have to remember that RBSI is a vast empire, the largest personal lines insurer in the country.
 
The nature of the tampering was “minor” and almost certainly carried out by a few rogue employees disconnected to top-level management.
 
It would be highly surprising if the tampering was a plan concocted at board level to deceive the City watchdog.

Judging by the FSA’s final notice, it’s most likely to be a mistake by staff, who have misunderstood their instructions and thought it was ok to polish up the complaint files.

At other times, staff would have probably known the alterations were wrong, but hoped to get away with it in a weighed up risk reward decision.

All of this was prompted by staff being scared of getting into trouble with their managers of the regulator.

 
Moving forward

What Geddes must do now is try to root out the rogue employees to ensure they are punished accordingly, if they have not been already.
 
Geddes has, with backing from the huge financial muscle of the state-owned banking parent, done a good job in turning the business around.
 
If the flotation goes well, this misdemeanour will be quickly forgotten.