FSA Fines IFA for Lehman Failings

RSM Tenon Financial Services Limited have been fined £700,000 by the FSA for failings in its advice and sales processes for Lehman-backed structured products. The FSA also found there were failings in preventing unsuitable advice on structured product and pension switching.

Further to this fine, Tenon will also have to buy back any products from customers who who received unsuitable advice and reimburse them for the amount originally invested plus interest.

This is the first enforcement action resulting from the FSA´s review of the marketing and distribution of structured products concluded in October 2009.

The FSA found that, in relation to its sales of Lehman-backed structured products between November 2007 and August 2008, Tenon failed to treat some of its customers fairly and failed to fully and correctly assess the risks of structured products. They failed to ensure advisers considered those risks when providing advice to customers.

More suprisingly for this compliance consultancy, Tenon

• failed to provide suitable advice to its customers
• failed to demonstrate the suitability of its advice by recording insufficient personal and financial information on customers´ files
• failed to implement and maintain appropriate compliance monitoring to control the use of non-compliant direct offer financial promotions.

Whilst a lot of on-lookers will say it was a failing of a big player who thought they were bigger than the FSA, the more important fundamental errors of suitability, insufficient KYC and basic financial promotions rules being flouted are even more worrying.

FSA director of enforcement and financial crime Margaret Cole says: "We take failure in this area very seriously and the fine and other actions announced today demonstrate our commitment to credible deterrence. "This is the first action we have taken for advice failings relating to Lehman-backed structured products following our recent review, and we acted swiftly and decisively in order to return money to investors as quickly as possible. We will continue to take tough action where we find evidence that firms are giving unsuitable advice to investors."

On Friday February 26th, AIFA warned that two more IFAs could be fined in the very near future.

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The FSA are monitoring the provision, marketing and uptake of these products. Where they have discovered issues with the firms involved in the production or distribution of these products in the past they have been subject to supervisory actions and, where necessary, enforcement proceedings. This is an approach that we will continue to pursue in future.

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A number of IFAs and Brokers have asked how to prepare for regulatory visits, either themed or full Arrow II.

Whilst larger firms would normally have Compliance Managers/Directors to guide their firm, often very few have had experience in actual visits, and some may not even be experienced in preparing for them.

There is no definitive list for preparing for any regulatory visit, and the requirements stipulated are usually a minimum, with the option for the investigators to explore laterally; so you must be ready for anything.

In an attempt to crystallise the main points to prepare in association with ComplianceConsultant.org we have posted a page on our website, unaccessible to general viewers, but available to you, reading this newletter. If you are asked for a password, enter "regvisit".

Banks Recoil From FOS Complaints Data

For the last 6 months of 2009, 27,137 compliants were received by the FOS for LLoyds (9,952), Barclays (9,836) and Bank of Scotland (7,349) the Financial Ombudsman Service shows in their latest figures. Financial Intemediary firms St James's Place and Sesame had 45 and 98 complaints respectively.

David Thomas, interim chief ombudsman of Fos, said: "While the number of cases referred by consumers to the ombudsman has continued to increase substantially, it is encouraging to see that some businesses are committed to handling complaints better. "However, there is evidently still room for significant improvement in the way other financial businesses handle complaints – judged by the proportion of cases where we overturn the decision that the businesses have themselves come to in their own earlier investigation of their customer complaints.