Carphone was angered by the claim and chief execuitve Charles Dunstone said that the FSA had used 'a sledgehammer to crack a nut' and failed to take into account that there was no suggestion of mis-selling or misinforming customers.
The group said: 'We find the FSA fine surprising and disproportionate. We believe that customers have suffered no disbenefit. At the end of the day, it is easier to pay up and move on.'
The FSA has accused the retailer of selling mobile phone insurance without providing key information to customers.
An investigation found that last year The Carphone Warehouse failed to send 118,000 customers, who had bought mobile phone insurance through its telesales channel, a Statement of Demands and Needs (SDN) in written form. It was then discovered that 56,000 of those customers also did not receive a policy summary setting out its main features.
This was considered a serious failing and was seen as a breach of the FSA's Treating Customers Fairly principle.
FSA director of retail firms Sarah Wilson said: 'The Carphone Warehouse failed its telephone sales consumers by not giving them all the information necessary for them to understand properly the insurance product they had bought.
'Therefore, customers were exposed to the risk of being left with an insurance policy that was unnecessary or provided incomplete cover leading to rejected claims. In either case, they could suffer some degree of financial loss.'