press release
“Lenders brace yourselves for counter-claims”, warns law firm
21 May 2008
Recent fines totalling nearly £1 million
levied on the Thinc Group pave the way for claims-making in the
financial services sector, according to Browne Jacobson, the
specialist insurance law firm.
Nik Carle, a partner in the firm’s professional indemnity (PI)
group, suggests that lenders and financial advisers would do well
to review their processes and procedures in the wake of the
£900,000 fine served on the Thinc Group by the Financial Service
Authority (FSA) last week (w/e 16 May). While the significant size
of the fine was based on Thinc’s serious failings in advising on
sub-prime products, the move by the regulator signals a clear
resolve to punish shoddy practice, according to Carle.
He said:
“This decisive move by the FSA sets a high bar for the
assessment of sub-prime lending and advisory practice. There is
certainly scope to adopt the FSA’s ‘Principles for Businesses’ as a
benchmark when litigating IFA claims and contributory negligence
allegations generally in this field.”
Referring to the FSA’s ruling against Thinc, Carle highlights
two key Principles – numbers 9 and 3 – that featured
prominently.
He continued:
“While Principle 9 concerns a firm’s obligation to take care
that the advice given to customers is suitable in all
circumstances, Principle 3 requires firms to organise and control
their affairs both responsibly and effectively, putting adequate
risk management systems in place. In the case of Thinc, the
business could not prove to the FSA that applicants’ credit
histories merited the sale of a sub-prime product. Nor could they
show that a good match had been struck between the product and the
applicants’ needs and circumstances or that there had been active
consideration of the applicants’ ability to afford the sub-prime
mortgage contract.”
Carle is urging PI insurers and advisers with exposures in the
sub-prime market to take a lead from this important case and apply
its lessons in practice.
He said:
“With Thinc, we now have the makings of an industry standard
for sub-prime selling and the FSA’s investigation is bound to be
regularly cited as a starting point when tackling professional
liability claims in this sector.”
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