FCA fines investment firm Sesame £6m for failing to ensure advice given to customers was suitable and for poor systems and controls
Published: 05/06/2013 Last Modified: 17/09/2013
The Financial Conduct Authority (FCA) has fined Sesame Limited (Sesame) £6,031,200 for two sets of failings: failing to ensure that investment advice given to its customers was suitable; and 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.
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 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.
Furthermore, 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.
Notes for editors
- The Final Notice for Sesame.
- An appointed representative (AR) is a person or firm who conducts regulated activities and acts as an agent for a firm directly authorised by the FCA. The directly authorised firm is known as the AR's 'Principal'. There must be a written contract between the principal and the AR documenting the arrangement. The Principal takes full responsibility for ensuring that the AR complies with our rules. More information can be found on the FCA website.
- Keydata Investment Services Limited was a product provider that designed and distributed structured investment products. These were distributed via a network of independent financial advisers (IFAs) and ARs.
- The Keydata life settlement products were investments in corporate bonds whereby Keydata purchased bonds which were issued by one of two Luxembourg-based companies, SLS Capital SA and Lifemark SA, which used the money raised to buy portfolios of life insurance policies from elderly US citizens and cash.
- On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers
- Find out more information about the FCA, as well as how it is different to the PRA.
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