Life assurer Abbey Life Assurance has been fined £1 million sterling for mortgage endowment mis-selling and failing to comply properly with the regulations.
Almost 50,000 customers may be due compensation worth between £120 million and £160 million.
Endowment returns have been hit by years of low bond yields as inflation has fallen and also by the weak stock market returns of the past two years. Britain's Financial Services Authority first looked into potential mis-selling of endowment mortgages in 1999 but decided against a full-scale review.
Since then, the Association of British Insurers has estimated up to 60 per cent of endowments will not provide sufficient returns to pay off the home loans they were supposed to cover.
A home owner with a mortgage endowment policy is essentially investing in the stock market in the hope that the capital growth and dividends from this investment will be enough to pay off the mortgage when the policy matures.
The fines for Abbey Life, which is owned by Lloyds TSB, relate to activities between 1995 and 1999 when it failed to monitor its advisers properly, had poor records and made unsuitable sales. The regulator said that Abbey had also sold endowment products to customers who were 'inappropriate' and would not have been prepared to take on the relatively high level of risk.