UK Regulator Fines Sesame Bankhall For Two Sets Of Failings

Natasha Taghavi

6 June 2013

The UK’s Financial Conduct Authority has fined Sesame Bankhall £6,031,200 (around $9 million) for two sets of failings: failing to ensure that the investment advice given to its customers was suitable, and failings in the systems and controls that governed the oversight of its appointed representatives.

The penalty is made up of a £245,000 fine for Sesame’s advice failings in relation to Keydata life settlement products, and a £5,786,200 fine for systems and controls weaknesses across its investment advice business.

All of the failings relate to Sesame’s oversight of its appointed representatives, which are individuals or firms that draw their authorisation from a principal - in this case, Sesame - with the principal ultimately accountable to the regulator for poor practice.

“By allowing appointed representatives to use their regulatory permission to operate, principals are effectively vouching for them. Therefore they must keep a close eye on what their appointed representatives do and keep them up to date with the regulator’s expectations. Critically, they must also act decisively when things go wrong. Sesame failed on all of these counts,” said Tracey McDermott, the FCA’s director of enforcement and financial crime.

Advice with “risk”

The FCA said that between July 2005 and June 2009 Sesame advised 426 customers to invest a total of over £6.1 million in Keydata life settlement products. However, there was a mismatch between customers’ stated investment objectives, attitude to risk and the product sold; the suitability letters provided to customers stated incorrectly that income or capital growth was guaranteed; and/or customers were advised incorrectly that the Keydata life settlement products were low risk. This was despite Sesame’s own view that the Keydata life settlement products presented investors with “a considerable amount of risk”.

In this way Sesame failed to take reasonable care to ensure the advice given by appointed representatives and the decisions they made on behalf of customers were suitable. In fact in every case reviewed by the FCA Sesame had failed to explain to customers all of the key risks and had failed to give a balanced view of the advantages and disadvantages of the Keydata life settlement products, the FCA said.

Systems and controls

The FCA also found that between July 2010 and September 2012, Sesame failed to take reasonable care to organise and control its affairs responsibly and effectively, and had failed to improve its oversight of the appointed representatives. More specifically, Sesame failed to identify and monitor sales of those products and funds which were not suitable for most customers - both desk-based file reviews and visits by Sesame’s internal compliance team were not always suitably robust.

“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. Through our multi-million pound investment in technology and improved systems and control framework, which includes the move to full file checking, we are working hard to ensure lessons are learnt and corrective actions implemented,” said George Higginson, Sesame Bankhall Group chief executive.

Sesame agreed to settle the case at an early stage of the investigation and therefore qualified for a 30 per cent discount; without the discount the fine would have been £8,616,000.

Last month, the FCA fined JP Morgan International Bank a total of £3.08 million (around $4.6 million) for systems and controls failings at its wealth management business. The failings persisted for two years and were not corrected until the FCA brought them to the firm’s attention in the course of its thematic review into wealth management firms and the suitability of their advice.