The new year got off to a bad start
for UK insurer Standard Life when it became the recipient of the
first significant fine handed down by the Financial Services
Authority (FSA) in 2010.
The £2.45 million ($3.95 million)
fine related to what the FSA termed “serious systems and controls
failures”.
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The FSA explained that between 10 July 2006
and 28 February 2009, Standard Life failed to ensure there were
proper systems and controls over its Pension Sterling Fund (PSF),
specifically in relation to the marketing material produced.
The FSA also found there had been a lack of
prompt and full investigation of concerns that arose about the
marketing material.
The FSA investigation concluded:
• Marketing material regarding the PSF was
“not clear, not fair and misleading”;
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By GlobalData• Despite the majority of the PSF being
invested in floating rate notes by July 2007, marketing material
issued by Standard Life referred to the PSF as being wholly
invested in cash; and
• There were no adequate systems or controls
in place to ensure that marketing material issued accurately
reflected the investment strategy for the PSF.
“Customers were thus misled as to the true
nature of the investments held by the PSF and as a result, were
given misleading information on the risk of capital losses,” the
FSA stressed.
The regulator added: “As the PSF was intended
primarily for the investment of pensions it was considered
appropriate for individuals approaching retirement and as such, the
capital risk associated with an investment was of great
importance.”
The FSA noted that risk of unexpected losses
was demonstrated by the reduction in value of the PSF by 4.8
percent (about £100 million) on 14 January 2009. There were some
98,000 retail customers invested in the PSF in late-December
2008.
In response to the value decline, Standard
proactively paid £102.7 million into the PSF to restore the value
of the investors' holdings to the position they would have
been in prior to the decline.
Standard has also contacted existing customers
identified as having received poorer quality marketing material in
order to determine whether any further compensation may be required
in their individual cases.
