Final Notice
FINAL NOTICE
1.
ACTION
1.1.
For the reasons given in this notice, the Authority hereby imposes on Sesame a
financial penalty of £1,598,000.
1.2.
Sesame agreed to settle at an early stage of the Authority’s investigation. Sesame
therefore qualified for a 30% (stage 1) discount under the Authority’s executive
settlement procedures. Were it not for this discount, the Authority would have
imposed a financial penalty of £2,282,902 on Sesame.
2.
SUMMARY OF REASONS
2.1.
Sesame is the largest network of financial advisers in the UK. As at 31 December
2012, Sesame had approximately 2,100 advisers advising customers on a wide
range of retail investment products, including pensions, annuities, and savings
and investments. Sesame distributes these products on behalf of investment
product providers.
2.2.
One of the central objectives of the Authority’s Retail Distribution Review was to
remove the potential for commission payments to advisers to distort the advice
consumers receive. The RDR banned commission payments (save in certain
limited circumstances) from providers to advisory firms to help ensure that:
(1)
providers compete on the price and quality of their products to secure
distribution rather than on commission levels; and
(2)
advisory firms are not inappropriately influenced by the payment of
commission when providing advice to their customers.
2.3.
However, the Authority is concerned that, following RDR, some advisory firms
have sought to circumvent this ban on commission payments by seeking other
payments from providers which, while they do not look like traditional
commission, are intended to achieve the same outcome of securing distribution.
The Authority communicated this concern to the industry on a number of
occasions in the Relevant Period.
2.4.
The Authority has found that during the Relevant Period (namely 1 January 2012
to 31 January 2014) Sesame told certain providers that it expected them to
purchase additional services from companies in the Sesame group in order to
secure distribution of their products through Sesame’s new Restricted Advice
Proposition. Sesame effectively set up a ‘pay to play’ arrangement. Payments
were made by a number of the providers on Sesame’s Restricted Advice Panels for
services throughout the Relevant Period.
2.5.
Sesame acted in pursuit of its own commercial interests by selecting providers
(wholly or in part) on the sums the Sesame group would receive from those
providers for additional services. This was not in its clients’ best interests and had
the potential to distort the advice Sesame’s customers received.
2.6.
These ‘pay to play’ arrangements coincided with the Authority’s ban on provider
commission payments. The arrangements undermined the RDR’s underlying
objectives of improving transparency in the retail investment market and securing
an appropriate degree of protection for consumers.
2.7.
This misconduct amounts to breaches of Principle 8 and COBS 2.3.1R.
2.8.
Sesame breached Principle 8 because it failed to manage fairly a conflict of
interest between its commercial interests and its customers’ best interests. In
constructing its Restricted Advice Panels, Sesame was influenced by whether
providers would enter into service agreements with entities in the Sesame group
and the benefit that Sesame expected to accrue to it. The nature of these
arrangements (and the benefits Sesame expected to receive) conflicted with
Sesame’s duty to act in the best interests of its clients.
2.9.
Sesame breached COBS 2.3.1R because:
(1)
Sesame did not conduct its selection process for its Restricted Advice
Panels in accordance with its duty to act in its clients’ best interests.
Sesame only allowed providers who had already purchased services to
tender for a place on a Restricted Advice Panel. Sesame then expected
those providers to agree to purchase additional services in order to gain a
place on a Restricted Advice Panel, and Sesame’s selection criteria for its
Panels included the value of additional services a provider was willing to
purchase; and
(2)
the payments made for services to entities in the Sesame group were not
disclosed to Sesame’s customers in the manner required by COBS
2.3.1R(2)(b), when required. Such disclosure would have assisted
Sesame’s customers in making their own judgement about the nature of
the payments and how this could influence the advice they receive
(although Sesame would still have been required to manage the above
conflict fairly).
2.10. This is the fourth time that Sesame has been subject to enforcement action by the
Authority, the most recent being in June 2013. The Authority views Sesame’s
conduct as more serious as a result of its previous disciplinary history and failure
to improve its record of compliance.
2.11. The Authority therefore imposes a financial penalty on Sesame in the amount of
£1,598,000.
2.12. The Authority has made no findings in relation to whether the providers selected
for the Restricted Advice Proposition were or were not the most appropriate for
Sesame’s customers.
3.
DEFINITIONS
3.1.
The definitions below are used in this Final Notice.
“the Act” means the Financial Services and Markets Act 2000
“AR” means Appointed Representative
“At Retirement” means Sesame’s product range referred to as At Retirement
“the Authority” means the body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the Financial Conduct
“2004 Dear CEO Letter” means the “Dear CEO” letter sent to all groups supervised
by the Major Retail Groups Division and Insurance Undertakings, Fund Managers,
Banks, Buildings Societies and Networks supervised by Retail Firms Division,
published on the Authority’s website on 25 June 2004
“DEPP” means the Decision Procedure and Penalties Manual
“ITT” means the Invitation to Tender for the Restricted Advice Proposition sent by
Sesame to providers
“PIA Rules” means Personal Investment Authority Rules
“PIA Adopted FIMBRA Rules” means the Personal Investment Authority Adopted
The Financial Intermediaries, Managers and Brokers Regulatory Association Rules
“June 2012 RDR Newsletter” means the RDR newsletter issued by the Authority in
“August 2012 RDR Newsletter” means the RDR newsletter issued by the Authority
in August 2012
“Relevant Period” means 1 January 2012 to 31 January 2014
“Restricted Advice Panels” means the panels of providers that formed Sesame’s
“Restricted Advice Proposition” means the restricted advice channel which Sesame
launched in July 2012
“RFI” means the Request for Information for the Restricted Advice Proposition
sent by Sesame to providers
“SCARP” means Structured Capital at Risk Products
“SIB Principles” means the Statements of Principle of the Securities and
“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber)
4.
FACTS AND MATTERS
Sesame’s business
4.1.
Sesame is the largest network of financial advisers in the UK. As at 31 December
2012, Sesame had approximately 2,100 advisers advising customers on a wide
range of retail investment products, including pensions, annuities, and savings
and investments. Sesame distributes these products on behalf of providers.
4.2.
Sesame is part of a wider group of companies. Within the Sesame group are a
number of companies that sell services to providers, including services relating to:
(1)
marketing providers’ products to advisers;
(2)
participation at seminars and conferences aimed at advisers;
(3)
hospitality events aimed at facilitating business discussions between
advisers and providers;
(4)
development of IT systems; and
(5)
access to data and research on products sold by Sesame.
4.3.
Sesame has, for a number of years, built up strategic relationships with various
providers who purchase services from these companies on a regular basis.
Communications from the Authority
4.4.
In June 2004, the Authority sent a “Dear CEO” letter to relevant regulated firms
(the “2004 Dear CEO Letter”). This letter was published on the Authority’s
website on 25 June 2004.
4.5.
The 2004 Dear CEO Letter warned that up-front payments as a pre-condition for
appointment to an advisory firm’s panel were inconsistent with the Authority’s
standards of conduct.
4.6.
The 2004 Dear CEO Letter states, amongst other things, that:
“We have been told that in some instances product providers and intermediaries
(which are not in the same corporate group) may be contemplating significant up-
front payments (in some cases upwards of £1m) as a condition for the provider’s
products being placed on, or even considered for, the intermediary’s panel or
recommended list. These payments would be unconnected with, and additional
to, conventional commission which would be paid on the sale of particular
products.
We consider such payments would not be consistent with the standards of conduct
for firms – irrespective of whether they will be “whole of market” or “multi-tied.”
Such introductory payments would be incompatible with the fundamental principle
that firms must not conduct business arrangements that might give rise to a
conflict with its duty to customers.”
Retail Distribution Review
4.7.
In June 2006, the Authority launched the RDR, looking at how investments are
distributed to retail customers in the UK. The RDR was set up with the aim of
improving clarity for people who are looking to invest, raise the professional
standards of advisers and reduce the conflict of interest which is found in
remuneration for adviser services.
4.8.
The RDR made extensive changes to advice in the retail investment market.
These changes came into effect on 31 December 2012 and apply to all advisers in
the retail investment market.
4.9.
One of the central objectives of the RDR was to remove the potential for adviser
remuneration to distort the advice that customers receive. By ending commission
payments from providers to advisory firms, the Authority wanted to help ensure
that:
(1)
providers compete on the price and quality of their products to secure
distribution rather than on commission levels; and
(2)
advisory firms are not inappropriately influenced by the payment of
commission when providing advice to their customers.
7
4.10. The RDR also sought to improve the clarity with which firms providing retail
investment advice describe their services to consumers. The resulting changes
required firms to describe their services as either independent or restricted
advice. The commission ban and the Authority’s rules on inducements apply
equally to independent and restricted advice.
Communications on RDR
4.11. The Authority has frequently communicated to firms its objectives in relation to
the RDR and the expected changes in firms’ behaviour.
4.12. In June 2012, the Authority published an online newsletter with advice for retail
investment firms affected by the RDR (the “June 2012 RDR Newsletter”). The
June 2012 RDR Newsletter referred to the Authority’s concerns that firms were
looking to circumvent the advisor charging rules and warned that the Authority
would take the necessary action to prevent this.
4.13. The June 2012 RDR Newsletter said, amongst other things, that:
“Unfortunately we have found a number of firms that seem to be looking for ways
to circumvent the adviser charging rules. This includes soliciting or providing
payments that do not look like traditional commission but are generally intended
to achieve the same outcome – to secure distribution. Clearly such arrangements
are not in the spirit of what we’re all working so hard to achieve.
We are concerned that non-commission payments and benefits may be indicative
of firms seeking alternative ways to preserve features of the market that RDR is
trying to address. We have always said that we would take any necessary action
to deter firms from frustrating the intended market outcomes. We are considering
ways to reinforce our expectation that firms can only be remunerated by adviser
charges in relation to their new advisory business.”
4.14. This message was repeated in the August 2012 RDR Newsletter.
4.15. Starting in late 2012, the Authority undertook a thematic project into payments
made by providers to advisory firms under service agreements to determine
whether these agreements were being used to pass sizeable payments to advisory
firms to secure distribution. Sesame was included within this project, and the
Authority sent a number of communications to Sesame in 2012 and 2013
expressing concerns that the service agreements with providers may have
influenced Sesame’s selection process for its Restricted Advice Panels, in breach
of the Authority’s rules.
4.16. In September 2013, the Authority issued a guidance consultation on inducements
and conflicts of interest. Finalised guidance was then issued in January 2014,
which states: “[w]here an advisory firm operates a panel of providers, the
inclusion of providers on the panel should not be influenced by the provider’s
willingness and ability to purchase significant services from, or provide other
benefits to, the advisory firm”.
4.17. Prior to the RDR coming into effect, there was speculation in the retail investment
industry around the number of advisers that would offer either independent or
restricted advice. Sesame predicted that once the RDR came into effect, the
number of advisers acting on a restricted advice basis would increase and the
number of advisers acting on an independent advice basis would decrease. As
part of its strategy in response to RDR, Sesame decided to launch the Restricted
Advice Proposition, in addition to the whole of market proposition it had
previously offered. Under the Restricted Advice Proposition, Sesame’s advisers
would only advise on a restricted number of products from pre-selected providers,
instead of offering products from across the whole market.
4.18. Sesame launched the Restricted Advice Proposition in July 2012. Sesame set up
panels for different product markets, including pensions, At Retirement, and
investment product ranges.
Entry onto the Restricted Advice Panels
4.19. Sesame expected providers on its Restricted Advice Panels to support the
development of the Restricted Advice Proposition by purchasing services. This
would broadly involve paying for the training of advisers, development of a new IT
system, and promotion of the Restricted Advice Proposition to advisers. Sesame
expected providers to commit to these service agreements for a five year term
and levels of payments for these services were agreed. Sesame communicated
these expectations to providers during the selection process for the Restricted
4.20. Sesame began the selection process for the Restricted Advice Panels by sending a
Request for Information (“RFI”) to providers. The RFI was only sent to providers
with whom Sesame had a strategic relationship and who already purchased
services from entities in the Sesame group.
4.21. The stated purpose of the RFI sent to providers was for Sesame “to gain a better
understanding of your appetite to participate in a new restricted advice
proposition and for the products you believe are most suitable for inclusion.”
4.22. The RFI contained a section “Sales and Marketing support.” This section included
the question: “What sales and marketing support (over and above normal
activity) would you offer to ensure the benefits of [sic] this proposition can bring
are maximised?” This section invited responses from providers to include
information about what additional services they were prepared to purchase from
companies within the Sesame group to support the Restricted Advice Proposition
(over and above their existing service agreements).
4.23. Sesame then sent an Invitation to Tender (“ITT”) for the Restricted Advice
Proposition to providers. The ITT similarly contained questions that invited
providers to include information about the additional level of services they would
purchase to support the Restricted Advice Proposition, including:
(1)
“What ability do you have within the value chain to make payments to [the
Sesame group] for the provision of certain services traditionally supplied by
the Provider?”
(2)
“We anticipate entering into long term agreements with selected partners
(at least 5 years). Please indicate the key contractual obligations and
benefits envisaged.”
4.24. Sesame used a scoring methodology for evaluating the responses to the ITT. The
responses to these questions were included within the score.
4.25. The responses from a number of providers to the RFI and ITT included details of
the additional services the providers were willing to purchase from entities in the
Sesame group as part of their application for the Restricted Advice Proposition.
4.26. During the selection process, Sesame communicated to a number of providers
that it expected the provider to spend an extra £250,000 per annum on services
for each position on a Restricted Advice Panel.
4.27. In one case, a provider included its budget for services from Sesame, for the
years 2012 to 2016, in its response to the ITT. Sesame reviewed the response
and a senior person within the firm requested that the provider increase its
budget for services by £750,000 per annum for the years 2014 to 2016.
4.28. There is no evidence to suggest that non-executive members of the Board were
aware of the discussions described at paragraphs 4.26 and 4.27.
4.29. Payments were made by a number of the providers on Sesame’s Restricted Advice
Panels under those service agreements throughout the Relevant Period.
4.30. Sesame’s expectation that providers enter into agreements to purchase additional
services from entities in the Sesame group had the potential to distort the advice
Sesame’s customers received. This is because the selection of providers for the
Restricted Advice Proposition was influenced by the willingness of those providers
to purchase additional services.
4.31. Sesame’s expectation that providers increase their service spend in order to
secure distribution on its Restricted Advice Panels coincided with the Authority’s
ban on provider commission payments. Sesame’s conduct effectively undermined
the ban on commission and the RDR’s objective of securing a greater degree of
protection for consumers.
4.32. Instead of ensuring that it paid due regard to its clients’ interests, Sesame acted
in favour of its own commercial interests and did not manage (fairly or at all) the
conflict of interest between its commercial interests and its customers' best
interests. Sesame was influenced by whether providers would enter into service
agreements with entities in the Sesame group when selecting which providers to
appoint to the Restricted Advice Proposition.
4.33. The long term multi-year nature of the service agreements between Sesame and
providers extended the effect of the conflict of interest. Sesame’s stated intention
was to rely on providers’ commitment to support and develop the Restricted
Advice Proposition through the purchase of services throughout the five year term
of the service agreements. Given this reliance, there was therefore a risk that
Sesame would be less likely to re-evaluate whether the providers and products
selected for the Restricted Advice Panels continued to be in its customers’ best
interests because it was committed to these providers being on the Restricted
Advice Panels over the five year term.
4.34. Sesame also failed to inform its customers (when required by the Authority’s
rules) that certain providers had made substantial payments for services to
entities in the Sesame group. Such disclosure would have assisted Sesame’s
customers in making their own judgement about the nature of the payments and
how this could influence the advice they receive (although Sesame would still
have been required to manage the above conflict fairly).
4.35. The Authority conducted a review of service agreements between advisory firms
and providers in 2012. Through this project, the Authority was alerted at an early
stage to Sesame’s non-compliance with our rules and engaged with the firm to
prevent any further breaches. The Sesame group service companies have since
ceased providing a number of services.
5.
FAILINGS
5.1.
The regulatory provisions relevant to this Final Notice are referred to in Annex A.
5.2.
Principle 8 requires firms to manage their conflicts of interest fairly, both between
itself and its customers and between a customer and another client.
5.3.
By reasons of the facts and matters set out above, Sesame breached Principle 8
because it acted in favour of its own commercial interests and did not manage
fairly a conflict of interest between its commercial interests and its customers'
best interests. Sesame was influenced by whether providers would enter into
service agreements with the entities in the Sesame group when selecting which
providers to appoint to the Restricted Advice Proposition.
COBS 2.3.1R
5.4.
COBS 2.3.1R requires that a firm must not pay or accept any fee or commission,
or provide or receive any non-monetary benefit, in relation to designated
investment business or, in the case of its MiFID or equivalent third country
business, another ancillary service, carried on for a client other than:
(1)
a fee, commission or non-monetary benefit paid or provided to or by the
client or a person on behalf of the client; or
(2)
a fee, commission or non-monetary benefit paid or provided to or by a
third party, if:
(a)
it does not impair compliance with the firm’s duty to act in the best
interests of the client; and
(b)
the existence, nature and amount of the fee, commission or benefit
has been disclosed to the client (in those circumstances where
disclosure is required under COBS 2.3.1); and
(c)
in relation to MiFID or equivalent third country business, or when
carrying on a regulated activity in relation to a retail investment
product, the payment of the fee or commission or the provision of the
non-monetary benefit is designed to enhance the quality of the
service to the client; or
(3)
proper fees which enable or are necessary for the provision of designated
investment business or ancillary services, and which cannot give rise to
conflicts with the firms’ duties to act honestly, fairly and professionally in
accordance with the best interests of its clients.
5.5.
Sesame breached COBS 2.3.1R because:
(1)
The payments made by providers (i.e. third parties) for services to entities
in the Sesame group impaired Sesame’s compliance with its duty to act in
the best interests of its customers as its selection process for its Restricted
Advice Panel was influenced by the volume of services that providers would
purchase. Sesame:
(a)
only allowed providers who had already purchased services to
tender for a place on a Restricted Advice Panel; and
(b)
then expected those providers to agree to purchase additional
services in order to gain a place on a Restricted Advice Panel.
Sesame’s selection criteria for its Panels included the value of additional
services a provider was willing to purchase. Taking these payments into
account when constituting its Restricted Advice Panels impaired Sesame’s
compliance with its duty to act in the best interests of its clients.
(2)
The payments made for services to entities in the Sesame group were not
disclosed to Sesame’s customers, when required. Such disclosure would
have assisted Sesame’s customers in making their own judgement about
the nature of the payments and how this could influence the advice they
receive.
6.
SANCTION
6.1.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of
DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority
applies a five-step framework to determine the appropriate level of financial
penalty. DEPP 6.5A sets out the details of the five-step framework that applies in
respect of financial penalties imposed on firms.
Step 1: disgorgement
6.2.
Pursuant to DEPP 6.5A.1G, at Step 1 the Authority seeks to deprive a firm of the
financial benefit derived directly from the breach where it is practicable to
quantify this.
6.3.
The Authority does not consider this to be an appropriate case for disgorgement.
6.4.
Step 1 is therefore £0.
Step 2: the seriousness of the breach
6.5.
Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that
reflects the seriousness of the breach. Where the amount of revenue generated
by a firm from a particular product line or business area is indicative of the harm
or potential harm that its breach may cause, that figure will be based on a
percentage of the firm’s revenue from the relevant products or business area.
6.6.
The Authority considers that the revenue generated by Sesame through the
Restricted Advice Proposition is indicative of the harm or potential harm caused
by its breach. In addition to revenue generated by Sesame, the Authority
considers that the revenue generated under the service agreements (entered into
with providers on Sesame’s Restricted Advice Panels) by companies in the
Sesame group is also indicative of the harm or potential harm caused by
Sesame’s breach. The period of Sesame’s breach was from 1 January 2012 to 31
January 2014. The Authority considers the total revenue for this period to be
£16,306,444.
6.7.
In deciding on the percentage of the revenue that forms the basis of the step 2
figure, the Authority considers the seriousness of the breach and chooses a
percentage between 0% and 20%. This range is divided into five fixed levels
which represent, on a sliding scale, the seriousness of the breach; the more
serious the breach, the higher the level. For penalties imposed on firms there are
the following five levels:
Level 1 – 0%
Level 2 – 5%
Level 3 – 10%
Level 5 – 20%
6.8.
In assessing the seriousness level, the Authority takes into account various
factors which reflect the impact and nature of the breach.
6.9.
The Authority considers that the following factors are relevant:
(1)
The nature of the breach: Sesame promoted its own interests over the
interests of its customers in direct contravention of its duty to manage
conflicts of interest fairly under Principle 8;
(2)
The level of benefit gained by the firm from the breach (DEPP
6.5A.2G(6)(a)): in relation to Sesame’s breaches of Principle 8 and COBS
2.3.1R, Sesame gained from the sale of services by entities in the Sesame
group.
(3)
The frequency of the breach (DEPP 6.5A.2G(7)(b)): in relation to Sesame’s
breaches of Principle 8 and COBS 2.3.1R, Sesame told a number of
providers that it expected them to purchase additional services from the
Sesame group in order to secure distribution of their products through the
Restricted Advice Proposition and payments were made by a number of
providers on the Restricted Advice Panels.
(4)
Whether the breach had an adverse effect on markets and, if so, how
serious that effect was (DEPP 6.5A.2G(6)(f)): in relation to Sesame’s
breaches of Principle 8 and COBS 2.3.1R, the breach had the effect of
undermining the RDR’s underlying objective of improving transparency in
the retail investment market and securing an appropriate degree of
protection for consumers. Sesame’s ‘pay to play’ arrangement coincided
with the ban on provider commission introduced by the RDR. By asking
providers to purchase additional services from Sesame group companies in
order to secure distribution, Sesame effectively circumvented the ban on
provider commission.
6.10. Taking all of these factors into account, the Authority considers the seriousness of
the breach to be level 3 and so the Step 2 figure is 10% of £16,306,444.
6.11. Step 2 is therefore £1,630,644.
Step 3: mitigating and aggravating factors
6.12. Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the
amount of the financial penalty arrived at after Step 2, but not including any
amount to be disgorged as set out in Step 1, to take into account factors which
aggravate or mitigate the breach.
6.13. The Authority considers that the following factors aggravate the breach:
(1)
The previous disciplinary record and general compliance history of the
(a)
In June 2013, the Authority imposed a financial penalty of
£8,616,000 on Sesame for: failing to take reasonable care to ensure
the suitability of its advice for customers; and failing to take
sufficient steps to improve its systems and controls directed at
achieving effective oversight of its ARs. These failings resulted in
(b)
In April 2007, the Authority imposed a financial penalty of £330,000
on Sesame for failures in relation to its complaints handling of
SCARPs. These failings resulted in breaches of Principles 2 and 6
and the Authority’s rules.
(c)
In October 2004, the Authority imposed a financial penalty of
£290,000 on Sesame for: failing to adequately monitor the selling
practices of an AR; failure to keep sufficient records; and failure of
compliance oversight. These failings resulted in breaches of PIA
Rules; PIA Adopted FIMBRA Rules; and Principle 2 of the SIB
Principles.
(2)
Whether FCA guidance or other published materials had already raised
relevant concerns, and the nature and accessibility of such materials:
(a)
the Authority published the 2004 Dear CEO Letter prior to the
period of the breach.
(b)
The RDR and its objectives were well-publicised. The Authority also
published the June 2012 RDR Newsletter, August 2012 RDR
Newsletter and guidance on inducements and conflicts of interest
during the period of the breach.
(c)
Further, the Authority communicated its specific concerns to
Sesame regarding the compliance of Sesame’s service agreements
on numerous occasions in late 2012 and 2013 as part of its
thematic project in relation to service agreements between advisory
firms and providers.
6.14. The Authority considers that the following factor mitigates the breach:
(1)
In July 2013, Sesame engaged an independent third party to undertake a
review of the services that were offered by the Sesame group. Following
that review, Sesame voluntarily withdrew certain of the services that were
offered to providers.
6.15. Having taken into account these aggravating and mitigating factors, the Authority
considers that the Step 2 figure should be increased by 40%.
6.16. Step 3 is therefore £2,282,902.
Step 4: adjustment for deterrence
6.17. Pursuant to DEPP 6.5A.4G, if the FCA considers the figure arrived at after Step 3
is insufficient to deter the firm who committed the breach, or others, from
committing further or similar breaches, then the Authority may increase the
penalty.
6.18. The Authority considers that the Step 3 figure of £2,282,902 represents a
sufficient deterrent to Sesame and others, and so has not increased the penalty at
Step 4.
6.19. Step 4 is therefore £2,282,902.
6.20. Step 5: settlement discount
6.21. Pursuant to DEPP 6.5A.5G, if the Authority and the firm on whom a penalty is to
be imposed agree the amount of the financial penalty and other terms, DEPP 6.7
provides that the amount of the financial penalty which might otherwise have
been payable will be reduced to reflect the stage at which the Authority and the
firm reached agreement. The settlement discount does not apply to the
disgorgement of any benefit calculated at Step 1.
6.22. The Authority and Sesame reached agreement at Stage 1 and so a 30% discount
applies to the Step 4 figure.
6.23. Step 5 is therefore £1,598,000.
6.24. The Authority therefore imposes a total financial penalty of £1,598,000 on
Sesame for breaching Principle 8 and COBS 2.3.1R.
7.
PROCEDURAL MATTERS
Decision maker
7.1. The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.
7.2. This Final Notice is given under, and in accordance with, section 390 of the Act.
Manner of and time of Payment
7.3. The financial penalty must be paid in full by Sesame to the Authority by no later
than 3 December 2014, 35 days from the date of the Final Notice.
If the financial penalty is not paid
7.4.
If all or any of the financial penalty is outstanding on 4 December 2014, the
Authority may recover the outstanding amount as a debt owed by Sesame and
due to the Authority.
7.5.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this notice relates. Under those provisions,
the Authority must publish such information about the matter to which this notice
relates as the Authority considers appropriate. The information may be published
in such manner as the Authority considers appropriate. However, the Authority
may not publish information if such publication would, in the opinion of the
Authority, be unfair to you or prejudicial to the interests of consumers or
detrimental to the stability of the UK financial system.
7.6.
The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.
Authority contacts
7.7.
For more information concerning this matter generally, contact Anthony
Monaghan at the Authority (direct line: 020 7066 6772), Allegra Bell (020 7066
8110) or Anne Cosserat (direct line: 020 7066 8748).
Megan Forbes
Project Sponsor
Financial Conduct Authority, Enforcement and Financial Crime Division
ANNEX A
RELEVANT STATUTORY AND REGULATORY PROVISIONS
1.
RELEVANT STATUTORY PROVISIONS
1.1.
The Authority’s operational objectives, set out in section 1B(3) of the Act, include
the consumer protection and integrity objectives.
1.2.
Section 1C of the Act is the consumer protection objective: “securing an
appropriate degree of protection for consumers.”
1.3.
Section 1D of the Act is the integrity objective: “protecting and enhancing the
integrity of the UK financial system.”
1.4.
Section 206(1) of the Act provides:
“If the appropriate regulator considers that an authorised person has contravened
a relevant requirement imposed on the person it may impose on him a penalty, in
respect of the contravention, of such amount as it considers appropriate."
2.
RELEVANT REGULATORY PROVISIONS
Principles for Businesses
2.1. The Principles are a general statement of the fundamental obligations of firms
under the regulatory system and are set out in the Authority’s Handbook. They
derive their authority from the Authority’s rule-making powers set out in the Act.
The relevant Principles are as follows.
“A firm must manage conflicts of interest fairly, both between itself and its
customers and between a customer and another client.”
COBS
2.3. COBS 2.3.1R provides (and has since 31 December 2012 provided):
“A firm must not pay or accept any fee or commission, or provide or receive any
non-monetary benefit, in relation to designated investment business or, in the
case of its MiFID or equivalent third country business, another ancillary service,
carried on for a client other than:
(1)
a fee, commission or non-monetary benefit paid or provided to or by the
client or a person on behalf of the client; or
(2)
a fee, commission or non-monetary benefit paid or provided to or by a
third party or a person acting on behalf of a third party, if:
(a)
the payment of the fee or commission, or the provision of the non-
monetary benefit does not impair compliance with the firm's duty to
act in the best interests of the client; and
(b)
the existence, nature and amount of the fee, commission or benefit,
or, where the amount cannot be ascertained, the method of
calculating that amount, is clearly disclosed to the client, in a
manner that is comprehensive, accurate and understandable, before
the provision of the service;
(i)
this requirement only applies to business other than MiFID or
equivalent third country business if it includes giving a
personal recommendation in relation to a retail investment
product, or giving advice or providing services to an
employer in connection with a group personal pension
scheme or group stakeholder pension scheme;
(ii)
where this requirement applies to business other than MiFID
or equivalent third country business, a firm is not required to
make a disclosure to the client in relation to a non-monetary
benefit permitted under (a) and which falls within the table
of reasonable non-monetary benefits in COBS 2.3.15G as
though that table were part of this rule for this purpose only;
(iii)
this requirement does not apply to a firm giving basic
advice; and
(c)
in relation to MiFID or equivalent third country business, or when
carrying on a regulated activity in relation to a retail investment
product, the payment of the fee or commission, or the provision of
the non-monetary benefit is designed to enhance the quality of the
service to the client; or
(3)
proper fees which enable or are necessary for the provision of designated
investment business or ancillary services, such as custody costs,
settlement and exchange fees, regulatory levies or legal fees, and which,
by their nature, cannot give rise to conflicts with the firm's duties to act
honestly, fairly and professionally in accordance with the best interests of
its clients.”
2.4. In the portion of the Relevant Period prior to 31 December 2012, COBS 2.3.1
provided:
“A firm must not pay or accept any fee or commission, or provide or receive any
non-monetary benefit, in relation to designated investment business or, in the
case of its MiFID or equivalent third country business, another ancillary service,
carried on for a client other than:
(1)
a fee, commission or non-monetary benefit paid or provided to or by the
client or a person on behalf of the client; or
(2)
a fee, commission or non-monetary benefit paid or provided to or by a
third party or a person acting on behalf of a third party, if:
(a)
the payment of the fee or commission, or the provision of the non-
monetary benefit does not impair compliance with the firm's duty to
act in the best interests of the client; and
(b)
the existence, nature and amount of the fee, commission or benefit,
or, where the amount cannot be ascertained, the method of
calculating that amount, is clearly disclosed to the client, in a
manner that is comprehensive, accurate and understandable, before
the provision of the service;
(i)
this requirement only applies to business other than MiFID or
equivalent third country business if it includes giving a
personal recommendation in relation to a packaged product;
(ii)
where this requirement applies to business other than MiFID
or equivalent third country business, a firm is not required to
make a disclosure to the client in relation to a non-monetary
benefit permitted under (a) and which falls within the table
of reasonable non-monetary benefits in COBS 2.3.15G as
though that table were part of this rule for this purpose only;
(iii)
this requirement does not apply to a firm giving basic
advice; and
(c)
in relation to MiFID or equivalent third country business, the
payment of the fee or commission, or the provision of the non-
monetary benefit is designed to enhance the quality of the service
to the client; or
(3)
proper fees which enable or are necessary for the provision of designated
investment business or ancillary services, such as custody costs,
settlement and exchange fees, regulatory levies or legal fees, and which,
by their nature, cannot give rise to conflicts with the firm's duties to act
honestly, fairly and professionally in accordance with the best interests of
its clients.”
DEPP
2.5. Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of
financial penalties under the Act.
The Enforcement Guide
2.6. The Enforcement Guide sets out the Authority’s approach to exercising its main
enforcement powers under the Act.
2.7. Chapter 7 of the Enforcement Guide sets out the Authority’s approach to exercising
its power to impose a financial penalty.