CompaniesOct 31 2014

Sesame’s latest fine was a decade in the making

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Aggravating factors in the size of Sesame’s fine yesterday (30 October) for pay-for-play deals on its restricted advice panel was its history of flaunting the regulator’s rules and guidance, and its wilful ignorance of years’ of regulatory warnings on commission payments and inducements.

Here we take a look at the events over the last decade which led the group to this point.

2004: First fine

The first regulatory intervention happened in October 2004 with a £290,000 Financial Services Authority fine for failing to adequately monitor the selling practices of an appointed representative, failure to keep sufficient records and failure of compliance oversight.

Also that year the regulator published a ‘Dear CEO’ letter warning that up-front payments as a pre-condition for appointment to an advisory firm’s panel were inconsistent with its standards of conduct.

2007: Scarp heap

By April 2007, the FSA had imposed a second penalty of £330,000 on Sesame for failures in relation to its complaints handling of structured capital at risk products (Scarps).

At the time, William Amos, the regulator’s head of retail enforcement, said: “Sesame has no excuse for complaints handling failures of this kind, not least because the FSA had already issued a number of publications concerning both Scarps and complaints handling.”

2012: Pressure piles up

As the Retail Distribution Review loomed large in 2012, Sesame cited the strain some networks were under.

Nick Kelly, then managing director of Sesame Bankhall Group, stated: “Whilst the regulator recognises that a number of networks are under considerable strain, others are in better shape.”

In April of that year, the network launched its first restricted advice panels.

That June the FCA published an online newsletter referring to its concerns that firms were looking to circumvent the adviser charging rules and warning that it would take the necessary action to prevent this.

2013: Keydata clampdown

A year later in June 2013 the FCA imposed an £8.6m financial penalty - reduced a little more than £6m for early settlement - for failing to take reasonable care to ensure the suitability of its advice for customers in relation to sales of Keydata.

Last year the FCA also undertook a thematic project into payments made by providers to advisory firms under service agreements, working with Sesame among others to determine whether these agreements were being used to pass sizeable payments to advisory firms to secure distribution.

In September 2013, the FCA issued a guidance consultation on inducements and conflicts of interest, followed by final guidance in January 2014, which stated where advisory firms operate a panel of providers, inclusion should not be influenced by willingness or ability to purchase services from the advisory firm.

2014: The story so far...

Last month, FTAdviser revealed a Sesame past business review into pension transfers may mean advisers have to pay thousands of pounds relating to cases where ‘unsuitable’ recommendations were assessed to have been given.

This came in the wake of results in March which revealed the network had made a loss of £19m in the previous 12 months - double the loss recorded in the preceding year - in part due to the review.

Now, with this latest fine, Sesame has not only taken another hit of £1.6m, but it revealed it might seek to unwind some of these provider deals. Given that these are “legal contracts”, significant costs will probably be incurred in order to break those it deems inappropriate.

peter.walker@ft.com