The weaknesses in Norwich Union Life's systems and controls allowed fraudsters to use publicly available information, including names and dates of birth, to impersonate customers and obtain sensitive customer details from its call centres, said the FSA.

Also, in some cases they were able to ask for confidential customer records such as addresses and bank account details to be altered. The fraudsters then used the information to request the surrender of 74 customers' policies totalling GBP3.3 million in 2006.

During its investigation, the FSA found that Norwich Union Life had failed to properly assess the risks posed to its business by financial crime, including fraudsters seeking to obtain customers' confidential information. As a result, its customers were more likely to fall victim to financial crimes such as identity theft.

Margaret Cole, Director of Enforcement with the FSA, observed that: "Norwich Union Life let down its customers by not taking reasonable steps to keep their personal and financial information safe and secure."

She continued: "It is vital that firms have robust systems and controls in place to make sure that customers' details do not fall into the wrong hands. Firms must also frequently review their controls to tackle the growing threat of identity theft.

"This fine is a clear message that the FSA takes information security seriously and requires that firms do so too."

According to the FSA, Norwich Union Life also failed to address the issues highlighted by the frauds in an appropriate and timely manner, even after they were identified by its own compliance department. The failings happened at a time of increasing awareness across the UK about the importance of information security.

The company has since co-operated fully with the FSA during the course of the investigation. It has taken a number of remedial actions, including co-operating with the police to identify and arrest the fraudsters, and carrying out a review of its information security processes. Norwich Union has additionally reinstated all surrendered policies in full.

Norwich Union Life agreed to settle at the early stage of the FSA's investigation, and therefore qualified for a 30% discount under the FSA's executive settlement procedure. Without the discount, the fine would have been GBP1.8 million.