The FCA has fined Credit Suisse International and Yorkshire Building Society a total of £3.8m for failings relating to financial promotions.
Credit Suisse has been fined £2.4m and Yorkshire Building Society has been fined £1.4m for failing to ensure promotions for Credit Suisse’s Cliquet Product were clear, fair and not misleading.
The FCA says it is the first time it has taken action against both the manufacturer and distributor of a product simultaneously.
The product was designed by Credit Suisse to provide capital protection and a guaranteed minimum return with the apparent potential for significantly more if the FTSE 100 performed consistently well.
The FCA says the probability of achieving only the minimum return was 40 to 50 per cent and the probability of achieving the maximum return was close to 0 per cent.
Despite this, Credit Suisse and Yorkshire Building Society’s financial promotions marketed the potential maximum return as a key feature.
The regulator says the maximum return figure was given ”undue prominence” in both Credit Suisse’s product brochures, which Yorkshire Building Society approved and provided to its clients, and in the society’s own financial promotions for the product, some of which did not clearly explain how returns were calculated.
The product was typically sold to unsophisticated investors with limited investment experience.
Some 84,000 customers invested a total of £797.4m in the product. Yorkshire Building Society was the major distributor, responsible for 75 per cent of the amount invested.
FCA director of enforcement and financial crime Tracey McDermott says the failings were “unacceptable”.
She says: “It is crucial that firms consider the needs of their customers from the time that products are being designed through to their marketing and sale. The information provided to customers forms an important part of this.
“Financial promotions are often the primary source of information for consumers and in this case Credit Suisse and Yorkshire Building Society let their customers down badly. These promotions were a serious breach of the requirement to be clear, fair and not misleading.
“Credit Suisse and Yorkshire Building Society knew that the chances of receiving the maximum return were close to zero but they nevertheless highlighted this as a key promotional feature of the product. This was unacceptable.”
In September 2010, following concerns raised by third parties, Yorkshire Building Society changed its promotions so that undue prominence was no longer given to the potential maximum return.
However, the FCA says Yorkshire Building Society continued to cite the potential maximum return and to give an unfair impression of the likelihood of achieving it. Credit Suisse also reviewed its promotions, but decided not to change its product brochure significantly.
In addition, the FCA found that Credit Suisse failed to have a procedure in place for a complete review of its long running promotions on a periodic basis.
The regulator says that if the firm’s processes had included such a review, this may have resulted in the problems with the product brochure being remedied earlier.
Both firms agreed to settle at an early stage of the FCA’s investigation and therefore received a 30 per cent settlement discount.