Release Date: 29th October 2014
To access the original FCA document, click here.
Summary
Sesame Ltd, the UK’s largest network of financial advisers, has been fined £1,598,000 by the Financial Conduct Authority (FCA) for engaging in ‘pay-to-play’ arrangements that contravened the Retail Distribution Review (RDR) regulations. These regulations, implemented in December 2012, prohibit commission payments to advisers in an effort to ensure unbiased financial advice based on the quality and suitability of investment products, rather than on the commission those products generate.
The FCA found that Sesame compromised the integrity of these regulations by operating a scheme where the inclusion of products on its restricted advice panels was influenced by the amount of money providers were willing to pay for additional services from the Sesame Group. This practice led to a conflict of interest between Sesame’s commercial benefits and the interests of its clients, with some providers being told they would need to increase their payments significantly to secure a place on the panels.
The key issues identified were:
- Sesame prioritised its own commercial interests over the duty to provide fair client treatment.
- There was a failure to manage conflicts of interest adequately, thereby undermining customer trust and regulatory standards.
- The tender process for panel inclusion was not conducted with the transparency required by the new RDR rules, as payments influenced decisions.
Key Takeaways for Other Firms:
- Adherence to Regulatory Standards: Firms must ensure full compliance with financial regulations, particularly those designed to eliminate conflicts of interest in financial advice.
- Transparency in Operations: Clear, transparent operational processes are crucial, particularly when changes in regulatory frameworks occur.
- Conflict of Interest Management: Effectively manage conflicts of interest to prioritise client interests and maintain trust in the financial services industry.
- Responsibility in Financial Practices: Firms must be vigilant in their practices to prevent any form of inducement that could compromise the quality of advice given to consumers.
- Proactive Engagement with Regulations: Firms should proactively engage with new regulations to ensure their practices are aligned with the intended outcomes of regulatory changes.
Sesame settled the case early, qualifying for a 30% discount, otherwise, the fine would have been £2,282,902. This case marks the fourth occasion the FCA has fined Sesame, underscoring the necessity for ongoing vigilance and improvement in compliance practices within the firm.
Back to the Dear CEO letter archives.