The Financial Conduct Authority (FCA) has fined both Credit Suisse International (CSI) and Yorkshire Building Society (YBS) for failing to ensure financial promotions for CSI's Cliquet Product were clear, fair and not misleading. CSI was fined £2.3m and YBS's fine was £1.4m.
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 probability of achieving only the minimum return was 40-50% and the probability of achieving the maximum return was close to 0%. 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. Over 80,000 customers invested a total of £797,380,716 in the product; with YBS being the distributor responsible for approximately 75% of the total amount invested.
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 September 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. CSI also reviewed its promotions in response to the third parties' concerns, but decided not to change its product brochure significantly.
Responding to the FCA’s action, Richard Lloyd, Which? executive director said: "We raised concerns about these products to the regulator in 2010, after finding companies recklessly promoting maximum returns that had never been achieved in the FTSE 100's history. It's good to see the FCA sending a clear message with these fines and it must now investigate all building societies that sold these products.
"If the financial sector is to restore consumer trust we need to see simple, clear products that work for consumers and marketing that is fair, concise and jargon-free."