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FCA fines Sesame £6m

George-Higginson-2009-700x450.jpg
Sesame chief executive George Higginson

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 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”.

These failings were found after 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: “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 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 product sales and of pensions transfers carried out between July 2010 and September 2012.

Sesame chief executive George Higginson says: “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.

“The executive team and I are fully committed to ensuring our advisers are delivering the right customer outcomes that can be clearly evidenced. This commitment is fully endorsed by the SBG board.”

Sesame qualified for a 30 per cent fine reduction due to early settlement. Without the discount, the fine would have been £8.6m.

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Comments

There are 25 comments at the moment, we would love to hear your opinion too.

  1. I find this an astonishing action by the FCA. As a Network Member – and client of Sesame I know many colleagues who are direct with FSA – and who rarely receive a visit or file inspection (in most cases once every 5 years !) In contrast Sesame have been rigorous in visiting and correcting AR firms each year and conducting many online assessments. As for Keydata – why should network members have to fund this additional charge when the FSA did not monitor Keydata properly and allowed the fraud to go until it was too late.

  2. I am probably sceptical or perhaps even paranoid.

    I am now at the stage that I think fines have gone beyond penalties for errors/mistakes or in the opinion of the FCA a badly run business. I now think they are more to keeping the FCA in business and collecting funds for the government.(remember the fine for Barclays, a large portion went to the government) Forget the reason that the government were going to distributes it to charities. The work that a lot of the charities do should be done by the government anyway from savings on waste the government spends anyway.

  3. In the Final Notice the FSA state that Sesame has 1,637 individual advisers and that represents 9-11% of the UK financial adviser population.

    That means the FCA believe there are between 18,188 and 14,881 financial advisers in the UK.

    Is that a bigger story?

  4. I find this incredible. As a end user of Sesames services, ie a Network member, the vigorous compliance and systems in place are second to none. I know several members who have left the Network as their compliance was simply to onerous and they deemed it as a form of business prevention. I shudder to think what the files of some direct IFAs are like.

  5. The people that overseen the LIBOR Scandal and the Global disaster with the trading of CDO’s. Last CEO picked up a cushy job with Barclays and a knighthood. The same organisation that got fined for bullying their own staff. Come on FSA FCA PRA, the corruption in London is mindboggling. Wise up everyone!!

  6. Wow! That’s hefty.

    My one worry in all of this would be whether this infers that networks need to operate as ’employers’ in all aspects of their duties for their ‘members.’

    If so, the model may be too expensive to continue with.

  7. If as previous posters have said – the compliance procedures were – tight, rigorous, tough etc etc, then it is quite clear that the FCA have got it wrong.

    Sesame’s response then should have been – sorry chaps, you are not correct in what you say, our processes are good and we will not pay your fine. If you do not like that Mr FCA then take us to court or if you take steps to prevent both us and our AR’s earning a living, thereby breaching Human Rights we will seek a court injunction to prevent you doing so and we will see you in court.

  8. We don’t know all the story but this suggests even the largest IFA service provider wasn’t fully aware of the products being offered by Keydata. I think the FSA (FCA) have shifted any blame for this debacle away from themselves when they know full well Keydata was offering a supposedly low risk product. The literature at the time was fully available to be examined and it is only after the event they’ve re-written history. I can’t believe Sesame hadn’t examined any of the cases (files) and any suspect cases would have been referred to their unsuitable advice department. Something is not right in the world of the FCA when AR’s of Sesame arranged Keydata investments of 6mil but could have been fined 8.6mil in total but received a 30% discount for early settlement?

  9. michael brayne 5th June 2013 at 12:46 pm

    I was once asked to take on an existing case of a FSAVC that had been sold to an 18-year-old, I contacted the compliance department and asked why they had signed this off as it was totally unsuitable for the client? The answer was; all the boxes were ticked so it looked compliant.

    I find that many compliance officers have the intelligence of a failed big issue salesmen.

  10. Soren Lorenson 5th June 2013 at 12:50 pm

    Every time I see an announcement like this I move closer to wanting to pack it all in.

    The FCA has re-written the history of its failed FSA past and is now punishing anyone severely that disagrees with it’s version of events.

    Free country? – I think not.

  11. Stuart Duncan 5th June 2013 at 1:01 pm

    “Qualifying for a discount for early settlement” can easily be read as: “If you argue we’ll charge you 50% more”, rather in the vein of car-clamping fly-boys or protection racketeers. Just saying….

  12. @ michael brayne

    “I find that many compliance officers have the intelligence of a failed big issue salesmen.”

    Very helpful and thoughtful.

    Given the number of hair-brayned schemes presented to me over the years I find that many advisers have as much common sense as a bag of hungry stoats.

  13. Thus is disgusting! I’m sure Sesame were and are in constant contact with FSA / FCA about procedures & compliance and for FCA to levy such a big fine speaks volumes of the FSA/ FSA ability to regulate. Surely they should have flagged this up before it became so bad and rather than the ‘big brother’ approach have used the ‘how can we make systems better and compliant’? This shows how poor the regulator has been . … not Sesame! The regulator should be responsible for not showing and ensuring Sesame were doing things properly. Did they sign them off during their many visits? FCA / FSA = Unfair practise.

  14. This is disgusting! I’m sure Sesame were and are in constant contact with FSA / FCA about procedures & compliance and for FCA to levy such a big fine speaks volumes of the FSA/ FSA ability to regulate. Surely they should have flagged this up before it became so bad and rather than the ‘big brother’ approach have used the ‘how can we make systems better and compliant’? This shows how poor the regulator has been . … not Sesame! The regulator should be responsible for not showing and ensuring Sesame were doing things properly. Did they sign them off during their many visits? FCA / FSA = Unfair practise.

  15. RegulatorSaurusRex 5th June 2013 at 1:30 pm

    “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”.

    This is a major issue with large firms and networks, they think they can pass the buck when the sale goes sour.

  16. Now that the FCA has fined Sesame 6mil which is more or less the total amount invested by all the Sesame AR’s will this mean the FCA will refund the FSCS levy they applied to any Sesame member. Or, do they want their cake and eat it? Just wondering.

  17. RegulatorSaurusRex 5th June 2013 at 2:40 pm

    @ James

    FSCS levy is calculated using, among other things, the number of approved persons within the firm. Sesame must have the contractual right to pass on the costs, what does your contract say?

    To complicate matters if Sesame (and other firms) had put adequate systems and controls in place the Keydata costs might have been reduced.

    You can’t have your cake and eat it.

  18. Whats wrong with selling an 18 years old something to boost their pension or even provide an earlier retirement. At least we know they’re in Occ Scheme where the top up advice isn’t questionable. Unlike anyone whom was sold a Personal Pension in the last couple of years. I hope it was explainned to THEM that the PP would possibly only last for 1 to 4 years unless they can afford NEST and PP.

  19. RegulatorSaurusRex | 5 Jun 2013 2:40 pm

    Oh, believe me Sesame pass on the costs.
    My comment about FSCS levy was tongue in cheek but I would ask where was the FSA when Sesame had their so called inadequate systems and controls in place, and if they knew there were problems what did they do to ensure they were put right? Or, is this yet another after the event moment from our regulator? Who if they carry on as they are will ensure there isn’t a financial services industry left to regulate.

  20. Whats wrong with selling a FSAVC to an 18 year old, at least it could help with boosting pension income or permitting early retirement. Its far better advice than the 4 year Personal Pension products that have been sold over the last 2 years. I hope it was documented that the product would only last 4 years unless the client can afford NEST and PP contributions.

  21. Robust compliance!! that is a joke.

    As a network member I raised a number of concerns with the Network 2 years ago when they switched to checking suitabiity letters only and in India. I was told if we didn’t do this your costs would have to go up considerably!

    I voiced my concerns at the thoroughness of file checks and the fact that as a network member I was paying for compliance support that simmply wasn’t there.

    Some of my files were checked in India and I was able to see using the compliance system that some of these checks took less than 5 minutes!

    I am not surprised at this fine for lacking systems and controls.

    Being selfish, I don’t care about the key data structured products fiasco as I have never used any structured product; capital at risk or deposit based.

  22. Under resourced compliance department and cost cutting. Business monitoring unit in India: 40 case checkers checking just the suitability report

    Specialist monitoring unit Huddersfield 8-10 people

    HOW MANY RI’s?

    Files being checked several weeks after sale

    Need I say more? anyone who thinks the Sesame compliance system is robust needs to have a conversation with themselves.

    My experiences of seeking advice from compliance is that they are too focussed on proceedure and not on outcomes.

    Has the client been sold an appropriate product to meet an identified need and do they understand any associated risks is surely more important than the wrong date on a form or ticking the wrong box on a form!

    They should have focussed more on compliance instead of doing deals pre RDR with product providers… And I am not going to mention Axa Elevate and Optimum!

  23. Well well. The last two posts appear to indicate just why the FCA were not challenged by Sesame.

    Hands in the air – you got us bang to rights guv’nor.
    I guess all those AR’s would just love to see the files of the directly authorised to work out how it can be done.

    It never fails to amaze me how this industry turns on itself.

  24. Hampshire Yokel 6th June 2013 at 12:37 pm

    I heard a couple of years ago, from a compliance consultant that had been previously advising directly authorised firms and, after a couple of months with Sesame doing ‘audits’ with their ARs, quickly went back to working with directly authorised firms.

    His ‘issue’ was not with the ARs themselves, but with the process adopted by Sesame, which he viewed as inadequate to manage risk and safeguard the interests of customers. He raised his concerns with his management, but did not get any support. Rather than work in what he considered to be a poorly run environment, he left.

    Seems to me he was right to do so.

  25. John Bloomfield 14th June 2013 at 1:58 pm

    Having read the report the failing with Keydata and Sesame was not that the compliance people were not vetting the files properly etc. It was that Sesame Research identified that Keydata plans had risks and receommended they not be used. But because Sesame at the time did not enforce research opinions – they were just used for recomendations the plans continued to be sold. And Sesame were not picking up on those that were sold and vetting the case for justification as to why Research’s opinion was not valid in that specific case.

    Direct result – we now have an approved list and if you want to use something not on it you need to make a case to the research and compliance teams justifying why before you write the business – if your argument is sound it will be approved and you can do it if not they will tell you why not and offer alternative suggestions – seems sensible to me

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