The Royal Bank of Scotland (RBS) is facing a £50 million compensation bill after it failed to correctly calculate the endowment policy premiums for 30,000 of its Flexible Mortgage holders.
Royal Scottish Assurance (RSA), the life arm of the RBS, has been criticised for failing to act with due care and diligence by the Personal Investment Authority (PIA) for pricing errors in its Flexible Mortgage policies sold between 1990 and 1994 and has been fined £2 million.
The errors led to thousands of customers paying lower premiums than were necessary to repay the outstanding mortgage debt when the policies reach maturity.
Following the ruling, RSA, which was set up in 1989 as a joint venture between the RBS and Scottish Equitable, issued a statement to confirm that customers will not be financially disadvantaged by this in any way, and has agreed remedial action with the RBS.
However, in a statement Benny Higgins, chairman of Royal Scottish Assurance, said: “While we fully accept that as a regulated entity RSA is accountable to both the customers and the regulator, we have raised an action for damages against Scottish Equitable who provided the product to RSA.”
In response to this Scott White, communications manager at Scottish Equitable, said: “It is unfair and wholly inappropriate that the Royal Bank of Scotland should have made reference to a court action which they know is being vigorously defended and which we have been strongly advised is wholly without merit.”
The Financial Services Authority is currently investigating a number of providers for breach of rules and more fines are expected in the new year.