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FCA: Sesame advisers sold Keydata as ‘low risk’ in 88% of reviewed cases

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Sesame chief executive George Higginson

The Financial Conduct Authority says Sesame advisers sold Keydata products as “low risk” in 88 per cent of cases sampled by the regulator.

The FCA fined Sesame £6m today for failing to ensure investment advice was suitable and for failings in the systems and controls that governed the oversight of its appointed representatives.

Around £245,000 of the fine related to 426 sales of Keydata products.

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 into Keydata, amounting to 89 per cent of her savings, despite having a “very cautious” attitude to risk.

Another 58-year-old client was advised to invest £10,000 in Keydata despite being in receipt of disability benefits with an income shortfall of £600 per year when seeking advice.

The FCA’s final notice says: “The failings identified were particularly serious because many customers were advised to invest a substantial proportion of their available funds in Keydata. 

“As a result, the impact of any unsuitable advice on customers was likely to be particularly significant.”

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Soren Lorenson 5th June 2013 at 12:45 pm

    Methinks there is a degree of re-writing of history here.

    If the FSA had actually been regulating KeyData, rather than sitting on their luxuriously cushioned arses, eating expensive biscuits and staring at expensive art paid for by you and me, then maybe Keydata wouldn’t have collapsed.

    If KeyData HAD been regulated properly, which would have meant that these investments WOULD have been safe, do you think we would be undergoing this witch-hunt?

    I doubt it.

    BTW I’m not a Sesame adviser, I don’t particularly like Sesame and I would never join their network BUT I don’t like to see advisers who have done the best they can based on the information available be screwed by a regulator that has all the information it ever needed but failed to take any action.

  2. A company buys life insurance products, and actuaries calculate, on the basis of the death rate, the likelihood of these policies paying the guaranteed return into the fund on death of the life assured. If the actuaries have proper actuarial qualifications it is low risk, if they are charlatans with no qualifications it is high risk. Or has someone else found another way of assessing investment risk in a fund that buys life insurance products?

  3. It would be useful to clarify whether these were Keydata life settlement linked products or structured products (or the mix). From memory, Keydata’s structured products all worked fine and delivered what they said, whereas the life policy ones suffered from both over-optimistic valuations and a large “theft” of assets.

  4. RegulatorSaurusRex 5th June 2013 at 1:07 pm

    Are the appointed representatives still authorised post RDR?

  5. Yes which products are we talking about. I did not recommend Keydata to my clients and was never satisfied with the lack of transparency. However surely the members of Sesame could be forgiven for providing these to their clients, ( I am avoiding the word sell) as they would be on a panel provided by Sesame. Isn’t that why you join a network to have that protection. In any case the FSA were the main culprits it this case and others. They should have properly regulated the companies concerned.

  6. Key data were authorised as ISA managers and to handle client money by the FSA. Life mark were authorised by the Luxembourg authorities and audited by one of the big 4 accountancy firms with a major bank as custodian. The FSA were told by KPMG that Key data did not have authority to use their name. But IFAs could not reply on anything any of this organisations said as being true or to tell of the errors!

  7. Missold Investments 6th June 2013 at 6:59 am

    @Clive Moore and @Knightly: that depends on your definition of ‘structured product’ (the FSA has no formal definition). The products were the Secure Income Bond, Secure Income Plan and the Defined Income Plan. The FSA described them as structured products in their Final Notice to Norwich & Peterborough BSoc in April 2011, though they have not used the term this time. The products used Luxembourg-based counterparties SLS and Lifemark. Those two counterparties invested in life settlement policies, and failed.

    @Soren: The regulation of Keydata is a different issue. Mis-selling in this case concerns the sales process and advice, regardless of the investment outcome. According to the FCA’s Final Notice published yesterday (5 June) ARs were warned that these were inherently risky products to start with. None of the sampled advice cases were found to be suitable. Most investors were elderly and had been seeking capital security. It was the failure of Keydata that found these mis-selling cases out.

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