L&G fights £1.1m mis-selling fine

INSURANCE group Legal & General was today set to ask an independent tribunal to slash a mis-selling bill from the Financial Services Authority in the latest twist to its landmark battle against the City watchdog.

The insurer goes back before the Financial Services and Markets Tribunal for a two-day hearing that may have huge ramifications for the way the FSA regulates the sector.

As well as asking the tribunal to waive a £1.1m fine for mortgage mis-selling, L&G will argue it should not have to pay a penny of £2m in legal costs generated by its appeal, given alleged flaws in the FSA case.

This could lead to an overhaul in the way the FSA tackles enforcement action, given the prospect of footing the bill for any such action subsequently overturned.

A spokesman for L&G said: 'We clearly feel there are issues on costs and the penalty and we will be vigorously contesting our position, as will the FSA.'

Today's hearing comes three months after the tribunal slammed the FSA for the way it built its case against L&G. The FSA fined L&G two years ago for 'systemic' mis-selling of mortgage endowment plans to risk-averse customers in the late 1990s.

L&G chief executive David Prosser appealed, arguing the disciplinary procedures were flawed and that, in any case, the insurer had complied with the rules. While the tribunal found L&G had failed to ensure its advisers explained the inherent risks of an endowment to customers, it did not accept FSA claims about the extent of mis-selling.

A total of 60 customers were put forward by the FSA in last autumn's appeal. Of the 13 the tribunal heard evidence from, it found only eight had been mis-sold.

The FSA director of enforcement quit for the private sector days before the tribunal verdict. The watchdog subsequently launched a review of its disciplinary procedures. Some critics say the FSA's enforcement decisions are not independent because one of its employees chairs the Regulatory Decisions Committee that rules on whether action should be taken.

The tribunal has already indicated that L&G should not have to face the full £1.1m fine.

Roman Cizdyn, an analyst at Oriel Securities, said: 'Most people are expecting a compromise. I doubt many would want to see the FSA embarrassed too much.'