FSA fines Standard Life £2.45m over pension sterling fund

20 January 2010 10:39 am | By Nicole Blackmore

The FSA has today fined Standard Life £2.45m for serious systems and controls failings that resulted in the production of misleading marketing material for its pension sterling fund.  

The regulator found that despite the majority of the fund being invested in floating rate notes by July 2007, marketing material issued by Standard Life referred to the fund as being wholly invested in cash.

There were approximately 98,000 retail consumers invested in the fund as at December 23, 2008.

Money Marketing first revealed in January 2009 that Standard Life had to revalue its pension sterling fund, resulting in a fall in value of almost 5 per cent.

The FSA found that between July 10, 2006 and February 28, 2009, Standard Life failed to ensure that there were proper systems and controls over the fund, specifically in relation to the marketing material produced.

This resulted in a risk of unexpected capital losses being incurred for those customers invested in the fund.

The FSA also found that there had been a lack of prompt and full investigation of concerns that arose about that marketing material.

It says the risk of unexpected consumer losses was demonstrated by the reduction in value of the fund by 4.8 per cent, approximately £100m, on January 14, 2009.  

The FSA adds that Standard Life proactively paid a total of £102.7m into the fund to restore the value of investors’ holdings to the position they would have been in prior to the fall in the unit price.  

In addition, Standard Life contacted existing customers identified as having received poorer quality marketing material in order to determine whether any further compensation may be required in their individual cases.  

The FSA says Standard Life also commissioned a report by an independent third party into the systems and controls relating to the marketing material issued in respect of the fund and improving the systems and controls.

FSA director of enforcement and financial crime Margaret Cole says: “The FSA takes the issue of misleading financial promotions very seriously and the fine announced today demonstrates our commitment to the principle of credible deterrence. It is critical that consumers are given an accurate understanding of the nature of investment products and the risks involved. Without this information, consumers are unable to make informed decisions about whether investments are suitable for their individual investment strategy.

“The failures at Standard Life arose because there were inadequate systems or controls in place to ensure that marketing material issued accurately reflected the investment strategy for the fund. There were also inadequate processes in place to enable effective communication between business areas and committees resulting in a lack of awareness of any divergence between the marketing material and investments held by the fund.”

A Standard Life spokesman says: “We have learned important lessons from this mistake and have made significant improvements to our marketing literature processes to prevent the same thing happening again. When our own internal review identified problems with some of our literature in February last year, we immediately apologised to customers and injected over £100m into the fund to compensate them for their losses from the sudden fall in unit price.  

“Since then, we have conducted a full and thorough review of existing literature and put in place a new improved process for new literature. We have worked closely with the FSA throughout and co-operated fully with its investigation.”

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