The consumer watchdog has handed out a severe fine of £2.8 million to the company who handled insurance policies for Phones 4u customers.

The Financial Conduct Authority (FCA) has handed out a fine of £2,834,700 to Policy Administration Services Limited (PAS) for poor handling of complaints about mobile phone insurance policies sold by Phones 4u.

PAS is an insurance intermediary which administers mobile phone insurance policies sold by Phones 4u and it is responsible for customer relations, claims and complaints linked to these sales.

The investigation was started by the Financial Services Authority and the most significant failings found by the FCA related to the way in which PAS handled complaints with the failure to record these complaints properly meaning that management information and regulatory reporting was wrong.

Along with these and other shortcomings, PAS was "simply unable to to treat customers fairly and come to a balanced decision about whether or not complaints had substance," the investigation found. Nor was it able to accurately detect areas that were repeatedly being complained about so it could "put them right and improve its customers' experiences."

Wide-ranging failures

Tracey McDermott, the FCA's director of enforcement and financial crime, said problems like this can arise in any business, but PAS' systems were simply not good enough:

"PAS had wide-ranging failures across its complaints handling processes - it failed to investigate complaints properly or to keep accurate records. This is simply not good enough - it does not meet our requirements and does not meet the needs of customers."

Last week the FCA published the findings of a review into mobile phone insurance which found that sometimes there was a gap between what customers expect, and what they are really getting.

"There are common themes in this case that revolve around consumer expectations and how they are sometimes being treated in practice. That review publication and this Final Notice stand side-by-side and I wholeheartedly recommend that all insurance firms - not just those in the mobile phone insurance market - read the two together," McDermott added.

PAS settled at an early stage of the investigation and therefore qualified for a 30 per cent discount. Without the discount the fine would have been £4,049,637.

As well as complaints not being recorded properly, the investigation also revealed that complaints were not fully investigates; complaints about mis-selling were often rejected just because the customer had signed a Direct Debit form and the failure to investigate and address the root-cause of complaints about the sale of insurance policies, such as mis-selling.