The Financial Conduct Authority has fined Sesame £6m for failing to ensure investment advice was suitable and for failings in the systems and controls that governed the oversight of its appointed representatives.
The fine is made up of £5.8m for systems and controls weaknesses in its investment business and £245,000 for advice in relation to Keydata products.
The regulator found that between July 2010 and September 2012, Sesame failed to take reasonable care to organise and control its affairs responsibly and effectively and failed to improve oversight of its appointed representatives. This meant it failed to monitor sales of funds that were not suitable for clients and that file reviews and supervisor visits were not suitably robust.
The FCA says Sesame’s culture and language used internally “supported an incorrect view that its customers were the ARs rather than the end retail customers”.
Sesame had advised 426 customers to invest a total of over £6.1m in Keydata products between July 2005 and June 2009. The regulator says the same failings could have been repeated because Sesame did not improve its systems and controls in the aftermath of the Keydata advice.
FCA director of enforcement and financial crime Tracey McDermott says: “The weaknesses in Sesame’s systems show there was an ongoing risk that unsuitable advice could be given by Sesame’s ARs.”
Sesame will now carry out a voluntary past business review of Keydata sales and of pensions transfers carried out between July 2010 and September 2012.
Sesame chief executive George Higginson told Money Marketing the network’s systems and controls and misselling failings were caused partly by advisers being allowed to create their own investment portfolios.
He says: “We cannot have advisers building their own portfolios completely of their own choosing, it is something the industry has driven and it is absolutely ridiculous. It is about time we as an industry grew up about this and put a stop to it.”
Since January, Sesame has applied stricter controls over investments permitted for use by representative firms. The firm now operates a three-tier list of investment solutions: an approved list which ARs are permitted to use freely; a banned list which ARs cannot use; and a third list which requires individual compliance clearance on a case-by-case basis.
Sesame: the failings
The regulator’s sample of Sesame’s Keydata sales found in 88 per cent of cases the products were sold as low risk. The final notice shows that in each of the 17 cases reviewed by the regulator, clients were not made aware of the level of risk related to the products. In 15 cases, clients were told the products were low-risk investments. One 79-year-old client was advised to invest £139,000 in Keydata, amounting to 89 per cent of her savings, despite her cautious attitude to risk.
Another 58-year-old client was advised to invest £10,000 in Keydata despite being in receipt of disability benefit with an income shortfall of £600 per year when seeking advice.
Between July 2005 and 8 June 2009 Sesame file reviewers looked at 45 Keydata sales. Of those 45, 41 cases were judged to be unsuitable. In both examples Sesame compliance reviewed the sales as suitable.