The Financial Conduct Authority (FCA) has fined Sesame Limited (Sesame) £6,031,200 for two sets of failings.
Firstly, failing to ensure that investment advice given to its customers was suitable and secondly, failings in the systems and controls that governed the oversight of its appointed representatives (ARs).
The penalty is made up of a £245,000 fine for Sesame’s advice failings in relation to Keydata life settlement products, and a £5,786,200 fine for systems and controls weaknesses across its investment advice business.
All of the failings relate to Sesame’s oversight of its ARs, which are individuals or firms that draw their authorisation from a Principal (in this case, Sesame), with the Principal ultimately accountable to the regulator for poor practice.
Unsuitable advice
Between July 2005 and June 2009 Sesame advised 426 customers to invest a total of over £6.1m in Keydata life settlement products. However, the FCA said that the vast majority of Sesame’s sales were flawed because:
- there was a mismatch between customers’ stated investment objectives, attitude to risk and the product sold;
- the suitability letters provided to customers stated incorrectly that income or capital growth was guaranteed; and/or
- customers were advised incorrectly that the Keydata life settlement products were low risk. This was despite Sesame’s own view that the Keydata life settlement products presented investors with “a considerable amount of risk”. While it issued its ARs with this view, it failed to take any further steps to prevent and/or identify mis-selling.
In this way Sesame failed to take reasonable care to ensure the advice given by ARs and the decisions they made on behalf of customers were suitable. In fact in every case reviewed by the FCA Sesame had failed to explain to customers all of the key risks and had failed to give a balanced view of the advantages and disadvantages of the Keydata life settlement products.
Systems and controls
The FCA also found, following further supervisory work, between July 2010 and September 2012, that Sesame failed to take reasonable care to organise and control its affairs responsibly and effectively, and had failed to improve its oversight of the ARs. In particular:
- Sesame failed to identify and monitor sales of those products and funds which were not suitable for most customers;
- both desk-based file reviews and visits by Sesame’s internal compliance team were not always suitably robust; and
- problems with record-keeping for ARs continued.
The FCA said that, in terms of Sesame’s culture, the language used internally within the firm supported an incorrect view that its customers were the ARs rather than the end retail customers.
The FCA found that these failings in Sesame’s systems and controls meant that the unsuitable sales that occurred between 2005 and 2009 could have been repeated in relation to other investment products between July 2010 and September 2012.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “Sesame is one of the largest and most well-known financial services networks in the UK responsible for the oversight of some 1,220 ARs. It describes itself as ‘perfectly placed to deliver expert guidance and services’ but the failings in this case fall far short of that. The weaknesses in Sesame’s systems and controls show that there was an ongoing risk that unsuitable advice could be given by Sesame’s ARs.
“By allowing ARs to use their regulatory permission to operate, Principals are effectively vouching for them. Therefore they must keep a close eye on what their ARs do and keep them up to date with the regulator’s expectations. Critically, they must also act decisively when things go wrong. Sesame failed on all of these counts.”
Sesame agreed to settle the case at an early stage of the investigation and therefore qualified for a 30% discount. Without the discount the fine would have been £8,616,000.
George Higginson, SBG chief executive officer, said: “We regret these past issues and, in co-operation with the FCA, we have undertaken an immediate past business review to ensure that any customers who received unsuitable advice on Keydata Products have been compensated. Through our multi-million pound investment in technology and improved systems and control framework, which includes the move to full file checking, we are working hard to ensure lessons are learnt and corrective actions implemented. The launch of our business change programme last September, with technology at its core, is already delivering tangible benefits and demonstrates our determination to continually strengthen our systems and controls.
“The executive team and I are fully committed to ensuring our advisers are delivering the right customer outcomes that can be clearly evidenced. This commitment is fully endorsed by the SBG Board. We have a long-term commitment to professional financial advice and I firmly believe the actions we are taking will put Sesame, our members and the consumers they serve in a stronger position moving forward.”