Get in touch: send your photos, videos, news & views by texting YORK to 80360 or send an email»
CPP hit with record fine as FSA investigation draws to a close
THE boss of one of York’s biggest private employers apologised yesterday after it was hit by a massive fine for misselling its insurance products.
Paul Stobart, chief executive of CPP, said: “We are deeply sorry for the errors and wrongdoings of the past and are paying a heavy penalty through what is a large fine.
“The next steps for the team are to complete the transformation programme and to rebuild our business and our reputation in the market.”
His comments came as senior politicians raised concerns about the impact on hundreds of York jobs, while the company’s share price soared.
The credit card and identity theft insurance group warned it would inevitably have to “reduce its cost base” in line with a new operating environment, and was considering the “most appropriate approach” to cutting costs.
York Central MP Hugh Bayley said he was worried about the short-term employment implications, although he said job losses were not inevitable and he dismissed speculation that the future of the whole company was in jeopardy.
“At least the FSA has made a decision and we have clarity and the company can be re-built,” he said. “I think it can remain market leader in a niche market, and that its market share can grow now that the FSA investigation is concluded.” He said the FSA had questions to answer about the damaging length of time the investigate had taken.
Council leader James Alexander said his concern lay in CPP’s continued presence in the city and for the staff it employed. “I will be contacting the chief executive Paul Stobart to talk to him about the company’s next steps and any support we might offer for staff and as a city.”
Tory group leader Ian Gillies said that although he hoped and trusted new products would be created and marketed, he was extremely concerned for the future of the company and its staff.
“CPP appear to have contravened the rules and have subsequently been punished,” he said. “Unfortunately, it is the employees who tend to bear the brunt of the penalties.”
CPP said the combination of an expected increase in costs, an anticipated decline of UK business as a result of FSA restrictions and lost business due to a likely decision by RBS not to renew a contract for mobile phone insurance would have a substantial adverse impact on the business in 2013 and beyond.
The fine is equalled only by one handed by the FSA to HSBC last December but CPP also expects to pay £14.5 million in redress to affected customers and has estimated that the total costs of the FSA’s investigation will rise to £33.4 million, while the group had previously set aside £24.9 million.
The FSA found CPP had sold card protection products to customers who did not need the cover and failed to explain the limited circumstances in which they would need it, and also overstated the risks of identity theft to sell another product.
Mr Stobart said the announcement marked the end of a long running investigation into historic practices in the UK. “The FSA Final Notice makes clear that, in the period to March 2011, there were significant failings in the systems and controls environment within CPP in the UK,” he said.
Tracey McDermott, the FSA’s director of enforcement and financial crime, said it had been a serious case, which had warranted its joint largest retail conduct fine and generated a sizeable bill for consumer redress.
“While CPP’s products were relatively inexpensive, they were sold widely and CPP encouraged its sales agents to be overly persistent,” she said.
“This exposed a very large number of customers to the unacceptable risk of buying products they did not want or need. Further, we had already warned the firm that it might be misleading customers about a feature of card protection from which customers were unlikely to benefit, but insufficient action was taken to rectify this.
“We have highlighted before our concerns about low cost insurance that offers little or no value to the customer. This case shows the action we will take if our warnings are not heeded.”
It is understood CPP believes it is too soon to comment on the job implications of yesterday’s announcement, but is committed to its York base.
Firm’s shares rally
SHARES in CPP soared yesterday as the conclusion of the long-running FSA investigation removed uncertainty which has been hanging over the business for the last 20 months.
CPP’s share price started the day at 18.69p, and at one point reached 32p, before finishing the day at 25.25p. The shares still had a long way to go before they reached the 300 pence level they held before the FSA probe began.
Company lured by talent and prime location
Mike Laycock recalls how The Press and its readers helped lure CPP to York - and examines the company’s recent travails.
“THIS is a fantastic piece of news for York.” That was how Paul Murphy, the man in charge of the city’s inward investment drive, hailed CPP’s decision in December 1998 to move its operations centre and 750 jobs to York from Chelsea, London.
The offices would go on the site of the former York carriageworks, which had closed down three years earlier with the loss of the remaining 750 jobs.
Mr Murphy revealed that the then Evening Press had helped secure one of York’s biggest employment coups in many years when 400 readers responded to a newspaper appeal in June for CVs from people interested in working for a then unnamed financial services company, which was considering coming to York.
The applicants’ quality helped convince CPP chairman Hamish Ogston it should plump for York, even though it could not offer the millions of pounds in grants and subsidies which competing cities had available.
Two other key factors played in York’s favour: the excellent living and working environment and good rail communications with London.
For more than a decade, CPP flourished, with the total number of York employees reaching about 1,000.
In March 2010, it was floated on the Stock Exchange with an offer price of 235p per ordinary share, giving it a market capitalisation of about £396 million.
But early last year, the company issued a shock profit warning as it revealed it was being investigated by the FSA over the sale of its card and identity protection products in the UK.
Its share price nosedived, Barclaycard stopped selling its identity protection and in February this year, CPP warned if it could not reach an agreement with the FSA, its viability would be under threat.
At the end of last month, CPP confirmed it was in takeover talks with an American company, Affinion Group Inc, after receiving an “initial, preliminary approach’ which might or might not lead to an offer being made for it, prompting senior councillors and MPs to raise concerns that any change of ownership might affect its continued presence in York.