TIDMCPP
RNS Number : 1699R
CPPGroup Plc
15 November 2012
CPPGROUP PLC
15 NOVEMBER 2012
Conclusion of FSA Investigation
CPPGroup announces conclusion of FSA investigation
CPPGroup Plc ("CPP" or the "Group") announces that it has
entered into agreements with the FSA to conclude the FSA's
investigation in respect of significant historic failings at CPP in
the UK. CPP also confirms that it has formalised the terms of its
voluntary agreement with the FSA as described in the Group's recent
Interim Management Statement, published on 26 October 2012.
The Board believes that these agreements provide a greater
degree of certainty for the business and our stakeholders and will
enable the Group to move forward.
Conclusion of FSA Investigation
In March 2011, the FSA commenced its investigation into Card
Protection Plan Limited ("CPPL"), one of the Group's regulated UK
entities. The Group's on-going engagement with the FSA regarding
its investigation has now resulted in an agreed position, with CPPL
agreeing to the publication today of a Final Notice which details
significant historic failings and to the phased payment of a
penalty of GBP10.5 million.
The penalty will be paid in instalments, commencing with an
initial payment of GBP2 million within the next 14 days, followed
by a payment of GBP2 million by 1 June 2013 and four further
instalments of GBP1.625 million, one to be paid in each quarter of
2014. The financial impact of the settlement agreed with the FSA
will increase the redress and the associated costs of the FSA
investigation from GBP24.9 million, already provided in the Group's
financial statements, to GBP33.4 million. The impact of these
additional costs on the business in 2013 and 2014 will be
material.
CPP acknowledges that there were significant historic failings
which occurred in the period from January 2005 to March 2011, as
set out in the Final Notice, and that the FSA's investigation and
identification of practices below the required standard are deeply
regrettable. The Group welcomes the opportunity to conclude its
discussions with the FSA on these issues and to resolve the
uncertainty that has surrounded the business regarding the duration
and outcome of the investigation.
The Group, under the leadership of a new Chief Executive
Officer, Paul Stobart, has developed and is implementing an
entirely different and improved approach to customer experience, a
more robust governance framework and enhanced risk management
structures and controls. The Group is well advanced in implementing
an extensive business transformation programme and has a revised,
customer-led strategy supported by significant organisational
changes within its Internal Audit, Risk and Compliance functions.
The UK business has a new operational structure, led by an
experienced new Managing Director for UK & Ireland, Shaun
Astley-Stone.
Based on independent customer research and feedback, the Group
is confident that customers place value on the products and
services offered, which for Card Protection includes the rapid
replacement of bank cards, keys, cash and travel documents with one
call from anywhere in the world. The Group is encouraged by the
progress it has made since March 2011 and believes that once the
period of significant adjustment in the UK has been completed, the
new strategy for the UK business focused on providing innovative,
compelling, affordable and compliant products, backed by a market
leading approach to customer service will provide a platform for
future growth.
Voluntary Variation of Permissions
As described in the Group's recent Interim Management Statement,
published on 26 October 2012, CPP has separately agreed with the
FSA a framework for the operation of the regulated UK entities
which will be in place whilst it completes its change initiatives.
This agreement has been formalised in the form of a Voluntary
Variation of Permissions ("VVOP") which prescribes restrictions on
the Group's regulated UK entities, Card Protection Plan Limited
("CPPL") and Homecare Insurance Limited ("HIL"). Once CPP believes
that it has completed the change initiatives and enhancements to
its governance and risk management systems and controls, it will
apply to the FSA for the restrictions on sales and asset
movements/borrowing arrangements to be lifted. The precise time at
which this will happen cannot be identified with certainty at this
stage, but the Group is committed to working closely and
co-operatively with the FSA to complete the process of addressing
historic issues and move towards the position of recommencing
regulated sales to retail customers.
Under the VVOP, the restrictions on new retail sales of our
regulated Card Protection and Identity Protection products will
continue, and will be extended to encompass sales through CPPL and
HIL in other EEA jurisdictions where the Group trades through UK
permissions, being Ireland, Italy and Portugal in the case of CPPL
and Spain and Ireland in the case of HIL. The immediate impact of
restrictions in EEA jurisdictions is not material and the Group is
taking action to mitigate any adverse impact.
As previously announced, the restrictions will also be extended
to encompass new retail sales of Mobile Phone Insurance as well as
Card Protection and Identity Protection. Renewals of existing
retail policies, however, continue to be unaffected. Similarly, the
Group's Packaged Account business, including all Mobile Phone
Insurance sold through Packaged Accounts, and all non-insured
service activities are unaffected by the VVOP and will continue as
normal. As previously outlined, the restrictions on asset
dispositions will be extended to cover both CPPL and in addition
HIL, which is the Group's UK insurance subsidiary and which mainly
provides Mobile Phone Insurance and Identity Protection
Insurance.
In addition and as previously outlined, the VVOP stipulates that
CPPL and HIL will not participate in future Group borrowing
arrangements or offer their assets as security for Group borrowing.
This will be effective from 1 April 2013 in the case of CPPL. In
the case of HIL the restriction will have immediate effect,
although HIL is not currently participating in any such
arrangements or providing security for Group borrowing. This has a
material impact on the Group's ability to raise debt finance.
Finally, as noted in the Interim Management Statement, CPP has
agreed to appoint an external professional services firm (approved
by the FSA as a skilled person) to review and monitor the UK
businesses' current claims management and complaints handling
processes over a three month period. This review provides an
opportunity for the Group and the FSA to ensure that these
processes are operating effectively and in accordance with our
regulatory obligations.
Customer Redress
We continue to have constructive discussions with the FSA and
certain of the Group's larger Business Partners, regarding the
form, structure, details and timing of customer redress. These
discussions continue to include consideration of the use of a
Solvent Scheme of Arrangement as a vehicle for providing
redress.
Certain smaller groups of customers, who may have been affected
as a result of other aspects of our historic practices, will also
be offered redress. This redress will be effected by CPPL
separately from the wider redress exercise referred to above.
Business Partner update
RBS has recently indicated that it is unlikely to renew the
Group's contract from March 2013 for the provision of Mobile Phone
Insurance in the UK. This will impact the Group's Packaged Account
business and will result in significantly lower revenue and profit
for the Group in 2013 and beyond.
Financial position
The Board continues to assess and actively pursue a range of
financing options. We are in discussions with our lending banks
about the Group's debt facilities which mature in March 2013 as
well as considering a number of alternative financing and strategic
options.
As announced on 31 October, the Board has received a preliminary
approach from Affinion Group Inc. The approach is at a very early
stage and there can be no certainty that an offer will be made or
as to the terms of any such offer, should one be forthcoming.
Affinion must, in accordance with Rule 2.6(a) of the Takeover Code,
clarify its intentions by no later than 5pm on 28 November (or such
later date as the Takeover Panel may consent to in relation to
Affinion, at the request of the Board of CPP), by either announcing
a firm intention to make an offer or that is does not intend to
make an offer.
The combination of the expected increase in FSA-associated
costs, the anticipated decline of the UK business as a result of
the restrictions imposed by the FSA, and lost business due to the
likely decision by RBS not to renew our contract will have a
substantial adverse impact on the business in 2013 and beyond. It
is inevitable that the Group will have to reduce its cost base in
line with the new operating environment and it is considering the
most appropriate approach to this.
Charles Gregson, Non-Executive Chairman, commented:
"The Board clearly recognises the seriousness of past failings
identified by the FSA in its investigation of historic practices in
the UK business, and is deeply sorry for any customer detriment
that may have occurred.
A great deal has been done to improve governance, compliance and
risk management capabilities throughout the Group. The Board is
pleased with the progress being made by the new executive
leadership team on deploying the new, customer-led, strategy as we
rebuild the business for the future."
Paul Stobart, Chief Executive Officer, commented:
"Today marks the end of the long running investigation into
historic practices at CPP 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. 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 investigation is however now closed and we must look to the
future.
Many things have changed and are changing at CPP. I joined the
Group in October 2011 with a remit to develop and deploy a
customer-led strategy for the Group. The transformation programme
covering people, customers, products and governance is well
advanced. We have new people in positions of influence throughout
the business including the MD of the UK, and the Heads of
Compliance, Risk Management and Internal Audit.
The next steps for the team are to complete the transformation
programme and to rebuild our business and our reputation in the
market.
Today, the closure of the investigation marks an important
milestone. I am confident that our creativity in product marketing
and our passion for providing the customer with an outstanding
experience, will, when combined with the strong governance across
the Group, provide us with a platform for future success."
A conference call for investors and analysts will be held on 15
November 2012 at 8:00 a.m. (GMT). For dial in details please
contact Rebecca Hougham at Tulchan Communications:
rhougham@tulchangroup.com.
For enquiries contact:
Investor Relations
CPPGroup Plc
Paul Stobart, Chief Executive Officer
Shaun Parker, Chief Financial Officer
Tel: +44 (0)1904 544702
Helen Spivey, Head of Corporate and Investor Communications
Tel: +44 (0)1904 544387
Media
Tulchan Communications: David Allchurch; Martin Robinson
Tel: +44 (0)20 7353 4200
Notes to Editors
CPPGroup Plc (CPP) is an International Assistance business
operating across 16 geographical markets with more than 200
Business Partners worldwide. Via its Business Partners, CPP
provides Life Assistance products to consumers, which includes
annually renewed and packaged products that provide assistance and
insurance across a wide range of market sectors helping our
customers to live life and worry less.
For more information on CPP visit www.cppgroupplc.com
Cautionary Statement
This announcement contains certain forward-looking statements.
These statements are made by the directors in good faith based on
the information available to them up to the time of approval of the
announcement but such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
Subject to the requirements of the UK Listing Authority's
Disclosure and Transparency Rules and Listing Rules, CPP undertakes
no obligation to update these forward-looking statements and it
will not publicly release any revisions it may make to these
forward-looking statements that may result from events or
circumstances arising after the date of this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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