Sesame has been fined almost £1.6m by the Financial Conduct Authority after it was found to have set up a ‘pay to play’ scheme under its ‘restricted’ advice panel option, with provider position having been influenced by services ‘bought’ from the network.
As a result of the Retail Distribution Review, Sesame rolled out a restricted service panel service to members, in the first part of a push to move the entire network onto a restricted basis to reduce its compliance burden and mitigate risk.
To establish the product panels, Sesame ran a tender process in which it asked providers what services they were prepared to pay the Sesame Group for providing, the FCA stated in a final notice.
During the selection process, Sesame told a number of providers that it expected them to spend an extra £250,000 a year on services. In one case, a provider included its budget for services from Sesame for the years 2012 to 2016 in its initial response to the tender.
Sesame reviewed the response and the firm requested that the provider increase its budget for services by £750,000 per annum for the years 2014 to 2016.
The FCA said this practice had the effect of undermining the ban on commission payments, in line with its rules on inducements which were published last year. The finalised rules also put restrictions in place on areas such as hospitality advisers and firms can accept.
The FCA found that Sesame promoted its own commercial interests over the interests of its clients.
Yesterday, the FCA announced it had discontinued its investigation into a suspected inducements in a distribution agreement between Partnership and an advisory firm.
According to the annuity provider, no enforcement action will be taken following the regulator’s probe of two firms which were referred to its enforcement division last September for potential rule breaches over conflicts of interest.
Sesame settled the case at the first opportunity and, as a result, qualified for a 30 per cent discount. Were it not for that, Sesame would have been fined £2.3m, which reflects in part the fact that this is the fourth time the regulator has had to fine the network.
John Cowan, SBG executive chairman, said: “We recognise that the arrival of the FCA’s RDR introduced a step change in regulation and heralded a new relationship between product providers and distributors.
“As the market leader, we should have been more responsive to the wind of change blowing through our industry.
“In January 2014 the leadership was changed and the new executive team has been implementing a new and more transparent policy, as well as building a robust operation that will serve customers better in the future.
“This has led to significant improvements in our processes and controls, with customers’ best interests and quality outcomes placed firmly at the centre of all business decisions.”
Tracey McDermott, director of enforcement and financial crime, said: “Firms must place customers at the heart of their business. Our reforms were designed to ensure advice is based on what is best for the client not the adviser.
“Firms can have had no doubt about the outcomes we were looking for here. Sesame’s approach to inducements, in the face of a clear position from the regulator, undermined the rules in order to look after its own interests.
“If we are to move on in financial services we must see firms focussing on how they achieve the best outcomes for their customers – not adopting practices that avoid our rules.”
donia.o’loughlin@ft.com
