Yorkshire Building Society fined £1.4m over financial promotions failures

YORKSHIRE Building Society (YBS) has been landed with a £1.4m fine from the Financial Conduct Authority (FCA) for financial promotions failures.

The FCA has today fined both YBS and Credit Suisse International (CSI) for failing to ensure financial promotions for CSI’s Cliquet Product were clear, fair and not misleading.

CSI was fined £2.4m.

The Cliquet Product was designed by CSI to provide capital protection and a guaranteed minimum return with the apparent potential for significantly more if the FTSE 100 performed consistently well.

The FCA said the probability of achieving only the minimum return was 40-50% and the probability of achieving the maximum return was close to 0% but despite this CSI’s and YBS’s financial promotions marketed the potential maximum return on the product as a key promotional feature.

The target market for the Cliquet Product was described by CSI as “stepping stone customers” who were conservative and risk averse.

The product was typically sold to unsophisticated investors with limited investment experience and knowledge through a number of distributors.

More than 83,000 customers invested nearly £800m in the product; with YBS being the distributor responsible for around 75% of the total amount invested.

The maximum return figure was given undue prominence in both CSI’s product brochures for the Cliquet Product, which YBS approved and provided to their clients, and in YBS’s own financial promotions for the product, some of which also did not clearly explain how returns were calculated, said the FCA.

Tracey McDermott, FCA’s director of enforcement and financial crime said: “It is crucial that firms consider the needs of their customers from the time that products are being designed through to their marketing and sale. The information provided to customers forms an important part of this. Financial promotions are often the primary source of information for consumers and in this case CSI and YBS let their customers down badly. These promotions were a serious breach of the requirement to be clear, fair and not misleading.

“CSI and YBS knew that the chances of receiving the maximum return were close to zero but they nevertheless highlighted this as a key promotional feature of the product. This was unacceptable.”

In 2010, following concerns raised by third parties, including Which?, YBS changed its promotions so that undue prominence was no longer given to the potential maximum return.

However, YBS continued to cite the potential maximum return and to give an unfair impression of the likelihood of achieving it, said the FCA.

CSI also reviewed its promotions in response to the third parties’ concerns, but decided “not to change its product brochure significantly”.

In addition, the FCA found that CSI failed to have a procedure in place for a complete review of their long running promotions on a periodic basis. If CSI’s processes had included such a review, this may have resulted in the problems with the product brochure being remedied earlier, the statement said.

Both firms agreed to settle at an early stage of the FCA’s investigation and therefore received a 30% settlement discount.

Today’s fines are the first time that the FCA has taken action against both the manufacturer of a product and its distributor simultaneously.

YBS said it accepted the FCA decision and apologised to its customers.

“On this occasion we have fallen short of our own high standards, and of putting our customers at the heart of everything we do,” it told the BBC.

“We have agreed with the FCA a process under which our affected customers will be given the option to exit their account and receive an appropriate rate of interest, or to retain their account until maturity.

“We will be communicating further information to affected customers, including those who have closed their account, over the coming weeks.”