The regulator found between July 2005 and June 2009 Sesame appointed representatives (ARs) advised 426 customers to invest a total of over £6.1m in Keydata life settlement products and in the vast majority of cases these sales were flawed.
Either there was a mismatch between clients’ stated investment objectives, attitude to risk and product sold; the suitability letters provided stated incorrectly that income or capital growth was guaranteed; and/or customers were advised incorrectly the Keydata products were low risk.
Lack of oversight
Sesame’s own view was the Keydata life settlement products presented investors with a ‘considerable amount of risk’ and while it issued its ARs with this view it did not take any further steps to prevent or identify mis-selling.
The FCA said Sesame had failed to take reasonable care to ensure advice given by ARs and decisions they made on behalf of customers were suitable.
In every case reviewed by the regulator 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.
A total of £245,000 of the penalty was charged in relation to Keydata.
Meanwhile, £5,786,200 was charged for the inherent systems and controls weaknesses the regulator found across Sesame’s investment advice business.
No improvement
Further supervisory work from the FCA, undertaken between July 2010 and September 2012, showed the firm had failed to take reasonable care to organise and control its affairs responsibly and effectively, and had failed to improve its oversight of ARs.
It failed to identify and monitor sales of those products and funds not suitable for most customers; compliance team reviews and visits were not always suitably robust; and problems with record-keeping for ARs continued.
The FCA said these failings meant 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.
Key data part II
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.”
George Higginson, Sesame’s CEO, 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.
Last month the Financial Services Compensation Scheme (FSCS) outlined a payout schedule for Keydata compensation, revealing that Keydata recoveries are likely to reach £75m over the next two or three years.
