FINAL NOTICE

ACTION

1.
For the reasons given in this notice, the Authority1 hereby imposes on Sesame

Limited (the “Firm”/“Sesame”) a financial penalty of £6,031,200.

2.
Sesame agreed to settle at an early stage of the Authority’s investigation, and

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 £8,616,000 on Sesame.

3.
The financial penalty imposed comprises two elements:

1 The Authority means the body corporate previously known as the Financial Services Authority and renamed

on 1 April 2013 as the Financial Conduct Authority

2

a. £245,000 in relation to a breach of Principle 9 (Customers: Relationship of

Trust) of the Authority’s Principles for Businesses (the “Principles”) and

various Authority Rules; and

b. £5,786,200 in relation to a breach of Principle 3 (Management and

Control).

4.
This Notice relates solely to Sesame’s conduct and makes no criticism of Keydata

or any person other than Sesame.

SUMMARY OF REASONS

5.
On the basis of the facts and matters described below, the Authority considers

that:

a. between 26 July 2005 and 8 June 2009 Sesame breached Principle 9 and

the following rules as set out in the Authority Handbook; COB 5.3.5R and

5.4.3R and COBS 4.5.2R, 9.2.1R, 9.2.2R and 9.2.3R; and

b. between 5 July 2010 and 21 September 2012 Sesame breached Principle

3.

6.
The Authority found that between 26 July 2005 and 8 June 2009 Sesame failed to

take reasonable care to ensure the suitability of its advice and discretionary

decisions for customers entitled to rely upon its judgment in breach of Principle 9

and various Authority Rules.

7.
Sesame advised 426 customers to invest a total of over £6.1m in Keydata Products

during the Relevant Period. These products involved investments in corporate

bonds, which used the funds raised to purchase and hold life insurance policies.

The vast majority of Sesame’s sales were flawed because:

a. there was a mismatch between many customers’ stated investment

objectives and attitude to risk and the product sold;

b. the suitability letters provided to customers stated incorrectly that income

or capital growth was guaranteed; and/or

3

c. customers were advised incorrectly that the Keydata Products were low

risk.

8.
In every case reviewed by the Authority, Sesame failed to explain to customers all

of the key risks and failed to give a balanced view of the advantages and

disadvantages of the Keydata Products.

9.
The Authority also found that the risk of unsuitable sales of Keydata Products

would have been diminished had Sesame taken reasonable care to ensure the

suitability of its ARs’ advice. From August 2005, when Sesame reviewed the

Keydata Secure Income Bond, Sesame’s internal view was that the Keydata

Products, which used the funds raised to purchase and hold life insurance policies,

presented investors with “a considerable amount of risk”. Sesame reviewed

another Keydata Product, the Secure Income Plan 10, in 2007 and came to this

view again. On both occasions, Sesame issued its ARs with a copy of its research

but failed to take any further steps to prevent and/or identify the mis-selling of

Keydata Products through targeted network supervision, file reviews and MI.

10.
The Authority also found that between 5 July 2010 and 21 September 2012

Sesame failed to take reasonable care to organise and control its affairs

responsibly and effectively, with adequate risk management systems, in breach of

Principle 3.

11.
In particular, Sesame failed to take sufficient steps to improve its systems and

controls directed at achieving effective oversight of its ARs in that:

a. it failed to identify and monitor sales of products and funds which were

not suitable for most customers;

b. both desk-based file reviews and visits by Network Supervisors were not

always suitably robust;

c. the MI Sesame used failed to identify higher-risk sales;

d. problems with record-keeping for departed and existing ARs continued;

and

e. in terms of Sesame’s culture and the importance of treating customers

fairly, the language used internally within Sesame supported an incorrect

view that ARs are Sesame’s customers rather than the end retail

customers.

12.
This action supports the Authority’s regulatory objectives of enhancing the integrity

of the UK financial system and the protection of consumers.

DEFINITIONS

13.
The definitions below are used in this Final Notice.

The “Act” means the Financial Services and Markets Act 2000 as amended by the

“AR” means Appointed Representative

“ATR” means attitude to risk

“COB” means the Conduct of Business part of the Authority Handbook, in force

until 31 October 2007

“COBS” means the Conduct of Business Sourcebook part of the Authority

Handbook, in force since 1 November 2007

“e-NBS” means Sesame’s electronic new business systems

The “Authority” means the means the body corporate previously known as the

Financial Services Authority and renamed on 1 April 2013 as the Financial

“Authority Handbook” means the Financial Conduct Authority’s Handbook of Rules

and Guidance and the Financial Services Authority’s Handbook of Rules and

Guidance as it existed until 31 March 2013

The “FSCS” mean the Financial Services Compensation Scheme

“Group” means the corporate group of which Sesame is a member

“IFA” means Independent Financial Adviser

5

“Keydata” means Keydata Investment Services Limited

“Keydata Products” means investments in corporate bonds, backed by Lifemark

and SLS and sold by Keydata, which used the funds raised to purchase and hold

life insurance policies, specifically the Secure Income Bond issues 1-4, the Secure

Income Plan issues 1-12 and 14 and the Defined Income Plan issues 1-8.

“Lifemark” means Lifemark SA

“MI” means management information

“OIB” means offshore investment bond

“Principles” means the Authority’s Principles for Businesses

“Relevant Period” means 26 July 2005 to 21 September 2012, excluding the

period between 9 June 2009 and 4 July 2010

“RMP” means Sesame’s Risk Mitigation Programme issued by the Authority

“RPL” means Sesame’s Recommended Product List

“SSAS” means Small Self Administered Scheme

“SCARPs” means Structured Capital At Risk Products

“Sesame”/ the “Firm” means Sesame Limited

“SIPP” means Self Invested Personal Pension

“Skilled Person” means the skilled person appointed by Sesame in 2009 as

required by the Authority under section 166 of the Act

“SLS” means SLS Capital SA

“TCF” means Treating Customers Fairly

The “Tribunal” means the Upper Tribunal (Tax and Chancery Chamber)

6

FACTS AND MATTERS – PRINCIPLE 9

Background

14.
Sesame is an IFA network with advisers throughout the UK. As at June 2009 it had

approximately 1,040 ARs who were able to advise on designated investment

products amounting to 1,637 individual advisers who offered investment advice

(representing 9-11% of the UK financial adviser population).

15.
Throughout the Relevant Period, Sesame held permission under Part IV of the Act

to carry on, amongst other regulated activities, the following:

a. advising on investments; and

b. arranging (bringing about) deals in investments.

16.
Between 26 July 2005 and 8 June 2009, Sesame sold Keydata Products to 426

customers. These customers invested over £6.1m in the Keydata Products. All of

these sales were made on an advised basis, so that Sesame undertook to consider

customers’ financial circumstances and provide advice on the suitability of a

product for the customer.

17.
Between 26 July 2005 and 8 June 2009, Sesame and its ARs generated

approximately £197,934 in gross commission from the sale of Keydata Products.

The Keydata Products

18.
Keydata was an Authority authorised product provider which designed and

distributed investment products via an extensive network of distributors, including

IFAs. The Keydata Products offered investors an income or growth investment, via

an ISA, PEP or direct investment. The income option paid a fixed percentage

income and aimed, but did not guarantee, to ensure the full return of capital to a

customer at the end of a five, seven or ten-year term. The growth option rolled up

and reinvested the income payments to provide compound growth over the life of

the product and similarly aimed, but did not guarantee, to provide full return of

capital at the end of the term.

7

19.
The Keydata Products were based on investments in corporate bonds. On behalf of

customers, Keydata purchased bonds which were issued by special purpose

vehicles incorporated in Luxembourg. The Keydata Products offered by Sesame

were investments in bonds issued by SLS Capital SA (“SLS”) and Lifemark SA

(“Lifemark”). A full list of all the Keydata Products sold by Sesame is set out in

Annex 2 to this notice. The funds raised through the issue of the bonds (i.e. the

amount invested by retail customers in the products through Keydata) were then

invested in a portfolio of US senior life settlement policies and cash. The Keydata

Product materials stated that the investment mix was intended to be 60%

policies/40% cash for the bonds issued by SLS, and 70% policies/30% cash for the

bonds issued by Lifemark. SLS and Lifemark each purchased life insurance policies

from senior US citizens, paid the premiums due on those policies, and collected the

maturity payment due under the policy when the individual died.

Distinctive Features of the Keydata Products

20.
Product material provided to Sesame’s ARs by Keydata revealed that there were a

number of significant distinctive features of the Keydata Products compared to

products that might reasonably be considered suitable for the customers Sesame

were advising, in light of the customers’ personal circumstances and objectives.

These included the following:

a. Although the Keydata Products were intended to return capital in full at

the end of the investment period, they offered no capital guarantee, and

put all capital invested at potential risk.

b. The successful performance of the Keydata Products depended on the

accuracy of actuarial models used by Keydata. There was a risk that

because of significant technological or pharmaceutical developments and

because of increased longevity, the accuracy of the actuarial models used

was unreliable.

c. The bonds had a fixed term of five, seven or ten years. This meant that

Keydata undertook to return funds to customers on the date when the

bond matured, even if, at that point in time, it had insufficient funds

because the insured individuals were living longer than predicted by the

actuarial models used by Keydata.

d. The underlying insurance policy assets were not traded on an exchange in

the way that stocks and shares are. The limited resale market for these

assets also created a risk that, if it became necessary to sell an insurance

policy to make funds available, this might take longer than anticipated,

and this might only be possible at a reduced value, thereby reducing the

value of the portfolio.

e. The Keydata Products involved investment in a single specialist asset class

(US senior life insurance policies) through a single issuer (first SLS, then

Lifemark). Although a percentage of the investment was to be held in

cash, this was not held as a separate investment, but was intended to be

used to pay the insurance premiums, income payments and operational

costs associated with the investment.

f. The Keydata Products had a significant international dimension: the

underlying assets were US life insurance policies, and the issuers of the

bonds were based in Luxembourg. As the bond issuer was offshore,

customers would not necessarily have recourse to the FSCS statutory

compensation scheme in the event of a default of the bond issuer.

21.
In order to determine whether the Keydata Products were suitable for Sesame’s

customers, in light of the customers’ personal circumstances and investment

objectives, Sesame’s ARs, who were advising those customers, should have given

careful consideration to these particular features.

Sesame’s unsuitable recommendations to invest in Keydata Products

22.
Sesame’s sale of Keydata Products was the subject of a review conducted by the

Authority that included a review of a sample of 17 customer files involving

recommendations by Sesame that customers purchase Keydata Products. The

Authority found that every single one of these 17 sales was unsuitable. Sesame’s

parent company reviewed the same 17 files together with a further 20 other files

that also included recommendations that customers purchase Keydata Products.

This review also concluded that none of the sales of Keydata Products in the 37

files it reviewed was suitable. The Authority thus considers that there is a

significant risk that the vast majority of the 426 sales of Keydata Products by

Sesame were unsuitable.

23.
In particular, from the sample of sales reviewed by the Authority, the following

types of failings were identified:

a. 75% of customers sought to invest in a product with minimal risk to

capital, some element of capital protection or that guaranteed a return of

the capital invested. The Keydata Products placed all of a customer’s

invested capital at risk, and so were not suitable for customers with these

stated investment objectives.

b. 40% of customers sought to invest in a product with a guaranteed income

or capital growth. 35% of the suitability letters provided to customers and

sampled by the Authority stated incorrectly that income or capital growth

was guaranteed. While the Keydata Products’ stated aim was to provide

regular income or capital growth, this was not guaranteed.

c. Sesame emphasised the fact that the Keydata Products were not linked to

movements in stocks and shares, but failed to make it clear that these

products were at least as risky as many stocks and shares in that the

underlying life policies were illiquid. 88% of customers were advised that

the product was low risk. This was either explicit, for example when a

customer was advised “the risk is very low compared to equities”, or

implicit, for example when a customer was advised that the Keydata

Product matched the customer’s very cautious ATR. Moreover, from the

Authority’s sample, not a single customer was properly advised that the

income or compound growth offered was conditional on the performance

of the underlying assets, the life insurance policies purchased by SLS or

Lifemark.

24.
In every case reviewed by the Authority, Sesame failed to explain to customers all

of the key risks and failed to give a balanced view of the advantages and

disadvantages of the product.

Serious nature of the failings

25.
The failings identified above were particularly serious because many customers

were advised to invest a substantial proportion of their available funds into Keydata

Products. As a result, the impact of any unsuitable advice on customers was likely

to be particularly significant.

26.
The Authority’s review of 17 sample files found that 70% of customers sampled

had concentration levels of Keydata Products in their investment portfolio that were

not aligned with their stated needs and/or attitude to risk and, in 3 of the 17

sample files, customers were advised to invest over 80% of their total available

funds in the recommended Keydata Product.

27.
The Authority’s review of 17 sample files also found that the average age of

customers sampled was 60. Accordingly, a significant number of customers were

approaching retirement or were already retired. A high exposure to a product with

a risk of capital loss may be less suitable for customers in or near retirement, given

that they may have difficulty replacing lost capital and may also have limited

sources of income and as such may be particularly vulnerable to a loss of income

from an investment product.

28.
The following sales are examples of unsuitable advice that Sesame gave in relation

to the Keydata Products:

a. Ms K, 79 years old, was advised by Sesame in September 2006 to invest

£138,602 (89% of her savings) in the Keydata Products, despite having a

“very cautious” attitude to risk and thus seeking only “minimum amount of

risk to your capital” (referred to numerically as 2/5 with 5 being the

highest risk appetite). She was advised that the Keydata Product was

suitable for her very cautious ATR.

b. Ms R, 58 years old, was advised in January 2006 to invest £10,000 (24%

of her savings) in a Keydata Product. She was in receipt of disability

benefits and had an income shortfall of £600 per year at the time she

sought Sesame’s advice. Sesame classified her ATR as “low risk” (referred

to numerically as 3/10), seeking only low risk to capital. However, her file

notes recorded that she would “need security of capital” and “need

guaranteed income and return of capital” suggesting she did not even seek

minimal risk to capital. The suitability letter sent to her after the Keydata

Product had been applied for did set out some of the risks involved, but

then listed amongst the product’s benefits that the investment was lower

risk than high yield corporate bonds or equities and that it provided

“guaranteed return of capital” and “guaranteed income”, which the AR

should have known was not the case.

29.
During the Relevant Period Sesame maintained a number of systems and controls

to achieve effective oversight of its ARs and ensure their compliance with

regulatory requirements, these included:

a. a training and competence scheme for ARs, which included skills and

knowledge assessments and ongoing monitoring visits by Account

Managers, later termed Network Supervisors;

b. product research, to review and provide an opinion on a broad range of

products and to identify the best quality products of a particular type for

the typical customer. These were then included on a ‘Recommended

Products List’ (the “RPL”) and, for every product on the RPL, a bulletin or

fact sheet was also produced;

c. collating samples of ARs’ files (based on the risks that the products sold

posed to the customer) to be reviewed by Sesame’s file compliance and

checking staff, who assessed suitability of advice and the proper recording

of that advice, including by reference to a product’s risk rating; and

d. collating and reviewing MI on sales data using a “Product Risk Matrix”,

which risk-rated Sesame’s sales by combining different risk factors for

each product and, from December 2007 onwards, a “Treating Customers

Fairly Dashboard” which included the proportion of unsuitable sales

identified through desk-based file reviews and the proportion of different

product types sold.

Failure to detect and prevent the mis-selling of Keydata Products

30. Due to the inherent risks in the Keydata Products, these specific products were not

included in Sesame’s RPL. In August 2005 Sesame issued a Product Fact Sheet for

the Keydata Secure Income Bond in response to a high number of enquiries from

ARs in relation to the investment base of the product and how it operated, why the

product did not appear on the RPL and apparent confusion as to whether the

product offered capital protection. While this review referred to the first of the

Keydata Products to be issued by Keydata, the Secure Income Bond, its

observations regarding the risks and uncertainties of the Secure Income Bond read

across to all other Keydata Products. Later issues of the Keydata Products,

although differently named, were structured in the same manner as the Keydata

Secure Income Bond reviewed by Sesame in 2005, and contained the same

inherent risks.

31.
The Product Fact Sheet produced by Sesame for the Keydata Secure Income Bond

highlighted many of the key risk factors and specific characteristics of the product

that have been set out above, namely:

a. “[the Secure Income Bond] is not a capital protected product”;

b. “Although this product has no associated stock market risk, there is

nevertheless a considerable amount of risk from other sources”;

c. “There is particular uncertainty regarding both the underlying asset base

and the portfolio management approach/capability”;

d. “…it is not certain that the portfolio management structure can deliver the

expected return net of costs and expenses”;

e. “…the major uncertainty is the lifespan of the assured”; and

f. “The range of different expected maturities held within the underlying

insurance contract portfolio suggests that a significant proportion will

continue to be in force when the Secure Investment [sic] Bond matures…

Investors bear the risk of any terminal capital shortfall but have no

interest in any excess value.”

32.
The Fact Sheet concluded that: “The inherent uncertainties over traded life

settlements as an investment type together with the portfolio management

approach and structure means that it is not possible to risk-rate this product with

any accuracy. In view of these imponderables it might be best to consider this

product only as a comparatively small part of a diversified high-income strategy –

even on a client specific basis.”

33.
This Product Fact Sheet was then circulated to Sesame’s ARs as part of the regular

bulletin sent by Sesame to its ARs. Further guidance was circulated on another

Keydata Product in August 2007 in response to Sesame’s awareness that another

Keydata Product was being marketed to ARs.

34.
Accordingly, Sesame had determined that; (a) the Keydata Products were not

suitable for inclusion on the RPL and (b) the risks and uncertainties of the Keydata

Products were such that they should only be considered as a “comparatively small

part of a diversified high-income strategy”.

35.
Notwithstanding these clear conclusions Sesame did not take any further steps to

monitor sales of the Keydata Products. Those steps could have included that:

a. a specific product code be adopted for ARs to record sales of Keydata

Products or other traded life policy investments when providing sales data

to Sesame;

b. ARs and file-review staff be trained on the specific characteristics and risks

of traded life policy investments;

c. AR supervisors identifying and reviewing sales of Keydata Products or

other traded life policy investments in their supervisory visits.

36.
For the reasons Sesame set out in its review of the Keydata Secure Income Bond in

August 2005, none of the Keydata Products were included in the Sesame RPL as

they all related to investments in corporate bonds which used the funds raised to

purchase and hold life insurance policies. Therefore, when reviewing a file in which

an AR advised a customer to purchase a Keydata Product, Sesame’s file reviewer

should have, in accordance with Sesame’s internal policies, obtained a risk-rating

for the Keydata Product from those who had reviewed the Keydata Secure Income

Bond.

37.
Between 26 July 2005 and 8 June 2009, Sesame file reviewers reviewed 45 sales of

Keydata Products. Despite the guidance on the risks inherent in the Keydata

Products available in the Product Fact Sheets from those who had reviewed the

Keydata Secure Income Bond, Sesame only identified four of the 45 sales as being

unsuitable. The 41 sales considered suitable included those of Ms R and Ms K

described above. Of the 41 files originally deemed suitable, nine were also subject

to a second quality assurance file review which found all of these sales to be

suitable.

Authority publications

38.
During the Relevant Period the Authority has highlighted repeatedly the importance

for AR networks to have in place adequate systems and controls to monitor its ARs.

In December 2005 the Authority published a factsheet which emphasised that an

AR network’s senior management should establish and maintain effective systems

and controls to comply with Authority requirements for monitoring ARs. The

organisation and responsibilities of a network’s compliance function should be

documented and it should have enough competent staff who are sufficiently

independent to perform their duties objectively.

39.
In December 2007, following a review of systems and controls, recruitment,

training and competence and culture of Treating Customers Fairly, the Authority

published a further Factsheet. This noted the risks of firms’ written procedures not

being followed in practice; too much reliance being placed on the remote checking

of client files; poor progress with Treating Customers Fairly with ineffective

communication to ARs; and not having appropriate management information or

measures in place to test whether ARs are delivering the Treating Customers Fairly

consumer
outcomes.
The
accompanying
Authority
guidance
stressed
the

importance for AR networks to have rigorous management information to allow

close and continuous supervision and monitoring of ARs, as well as the importance

of demonstrating that file checks cover the suitability of the advice given to

customers.

FACTS AND MATTERS – PRINCIPLE 3

Systems and Controls reviews in 2009 – 2012

40.
During the Relevant Period Sesame received supervisory visits from the Authority

in mid-2005, mid-2007, mid-2009 and late 2011 as well as other Authority

thematic visits. In its 2009 visit, the Authority had specific concerns with the

systems and controls for suitability of advice and record-keeping and thus required

Sesame to make a series of improvements and also to appoint a skilled person (the

“Skilled Person”) under section 166 of the Act, to review the adequacy and

effectiveness of Sesame’s reworked compliance oversight and AR control

frameworks, assess suitability of past business and provide an action plan for

improvements and remedial action where appropriate.

41.
The Skilled Person reported on 4 July 2010 that a past business review of 100

designated investment files had not found evidence of widespread unsuitable

advice and that Sesame’s compliance oversight and AR control frameworks

appeared largely fit for purpose. Nevertheless, the Skilled Person noted that there

were a number of cases that contained insufficient evidence and would need

further work before a definitive view could be formed on whether customers had

been treated fairly.

42.
An Authority visit in 2011 identified other ongoing risks, as a result of which the

Authority required Group Internal Audit function to undertake an annual review of

Sesame and provide assurance to the Authority that Sesame had adequate controls

in place, that those controls were being followed and that adequate records were

being maintained.

43.
Group Risk and Group Internal Audit functions undertook the required review

between June and September 2012 and issued their reports on 20 and 21

September 2012. Their conclusion was that a significant number of weaknesses

within Sesame’s control environment persisted. Many of these issues had been

highlighted previously by the Authority in 2005, 2007 and/or 2009.

Quality of advice controls

44.
Group Internal Audit found continuing professional development was maintained

and recorded by the individual AR firms, including whether they had read Sesame’s

Compliance Adviser Bulletin. There was therefore inadequate testing by Sesame

that ARs had read and understood the Compliance Adviser Bulletin. Group Internal

Audit recommended that Sesame consider automating the Compliance Adviser

Bulletin, including adding this to the AR’s record, and including an assessment test.

Similarly, in 2009, the Authority had stressed to Sesame that it faced significant

challenges around ensuring that its ARs read and understood key issues

communicated via a large number of email publications.

45.
Despite Sesame’s awareness of repeated Authority concerns regarding the quality

of desk-based file reviews raised following Authority visits in 2005, 2007 and 2009,

this problem had persisted until at least September 2012 - the sample review of

files carried out by Group Risk indicated deficiencies with the quality of current

desk-based file reviews, notably in relation to pension switching advice.

46. Group Risk and Group Internal Audit found also that Sesame was still operating

insufficient controls to prevent the sale of products considered likely to be

unsuitable by Sesame’s central control functions. This comment should be

considered in light of the following:

a. In May 2009, following an Authority thematic review, the Authority

informed Sesame that it had found significant failings in the quality of

advice given by Sesame on Lehman-backed structured products. Sesame

sold between 100 and 150 Lehmans-backed structured products. Of these,

14 files were sampled by the Authority, of which five were deemed

unsuitable, three unclear and only six suitable. Sesame subsequently

undertook a past business review of the sales of Lehman-backed

structured products and, where appropriate, provided redress to

consumers.

b. In July 2010, the Skilled Person did not identify systemic concerns with the

suitability of advice. However, a definitive view of the suitability of the full

file review population could not be determined due to issues of record

keeping by ARs.

Suitability of advice

47. Group Risk reviewed a sample of 168 files relating to sales of designated

investments between January and September 2012 to assess the suitability of

advice provided to customers. From this sample of 168 files, only 86 files (51%)

were assessed as suitable. The remaining files were either not obtained by Sesame

from its ARs (16 files –10%), were missing key documents (14 files – 8%) or did

not contain sufficient information in the documents held on file to be able to assess

suitability (35 files –21 %) or showed unsuitable advice to customers (17 files –

48.
12 of these 17 files deemed to be unsuitable related to pension switching advice

and had thus been reviewed by Sesame’s desk-based file reviewers as Sesame

checked all pension switching advice. However, Sesame had only identified 4 of the

12 files as being unsuitable.

Record-keeping

49.
The high proportion of files where suitability could not be assessed (a total of 65

files – 39%) is a further indication that Sesame had yet to resolve record keeping

issues, particularly with regard to retrieving files from ARs. This issue had already

been highlighted by the Authority in its 2005, 2007 and 2009 visits. The Authority’s

2009 RMP stressed that it was not acceptable to have to undertake further

investigation to demonstrate that advice was suitable, particularly as this process

would be heavily reliant on the AR remembering correctly the details of each case

and could be unreliable. The Skilled Person in 2010 reported that it could not

confirm definitively the effectiveness of Sesame’s systems and controls and the

suitability of Sesame ARs’ advice because there were a substantial number of cases

that contained insufficient evidence.

50.
In terms of Sesame’s culture and the importance of treating customers fairly, the

language used internally within Sesame supported an incorrect view that ARs are

Sesame’s customers rather than the end retail customers. In addition, Network

Supervisors observed by Group Risk exhibited a relationship management

approach when visiting ARs rather than a challenge and feedback approach. The

importance of this issue had been highlighted previously by the Skilled Person in

July 2010, who reported that changes to a more audit/compliance monitoring

focused role of the Network Supervisors was a positive step but for supervisors to

change the focus and emphasis of their day to day activities from a service-

provision function to a regulatory oversight function remained a key challenge. In

addition, only a small number of ARs or individual advisers were suspended or

terminated as a result of quality issues or being on an internal list of high risk

members for over six months. This had already been brought to Sesame’s

attention by the Authority in the RMP issued in May 2009 which highlighted a lack

of sanctions where mis-selling was found.

51.
Sesame’s “second line of defence” had only a limited second line check of Sesame

policy and guidance against the Authority Handbook to ensure compliance with

regulations. Then, in July 2010, the Skilled Person noted that there was the

potential for some blurring of the first and second lines of defence as senior

compliance management played a key role in both which should be revisited to

ensure that there was a correct balance of independent oversight and challenge.

52.
In relation to MI, Group Risk and Internal Audit found that deficiencies in Sesame’s

MI included committee MI not being detailed enough, lacking commentary and

analysis and not highlighting control weaknesses, high-risk product MI only being

produced twice a year with the definition of high-risk products being insufficiently

robust and no trend analysis on high-risk products.

53.
The Authority has also identified further persistent deficiencies in Sesame’s controls

and MI. In particular:

a. Sesame’s e-NBS system remained vulnerable to errors by ARs when

inputting data regarding new sales. This meant that throughout the

Relevant Period some high risk sales were at risk of being incorrectly

inputted, miscategorised as low risk and misrepresented in important MI,

for example in Sesame’s Product Risk Matrix, and consequently not

selected for review as part of the file review process. This vulnerability

persisted despite the Skilled Person highlighting in July 2010 that there

were also high levels of manual interventions which presented an inherent

controls risk. For example, approximately 15% of entries into the e-NBS

system had errors whose impact varied in materiality but could in some

instances result in a high risk sale being miscategorised as low risk and

thus not selected for review.

b. Where advice was given to place investments into an open-architecture

tax efficient wrapper, namely an ISA, a SIPP, a SSAS or an OIB, the sale

that was recorded on Sesame’s e-NBS system was the sale of the wrapper

and not the underlying investment product. Sesame’s MI would therefore

not detect high-risk products, such as unregulated collective investment

schemes, sold through one of these tax efficient wrappers.

Sesame’s response to mis-selling of Keydata Products and 2012 Group Reports

54.
In response to the Authority’s concerns, Sesame has undertaken on a voluntary

basis a past business review to identify and provide redress to those customers

who received unsuitable advice from Sesame leading to the purchase of a Keydata

Product but who have not received compensation from the FSCS for any losses

incurred as a result of their investment. This past business review has involved a

substantive review of 18 sales of Keydata Products. 17 sales were considered

unsuitable and one was unclear. Of the 17 unsuitable sales 12 did not require

redress due to FSCS compensation or early redemptions. Sesame has however

made, or offered to make, a redress payment of £126,445 to the remaining five

customers for losses suffered as a result of these unsuitable sales.

55.
The Authority notes that Sesame has taken steps to improve its systems and

controls. In addition, since September 2012, Sesame has been working on the

implementation of a business change programme, including a number of new

appointments to its executive team and Board.

56.
Sesame has also agreed to conduct a risk-based past business review to identify

and provide redress to those customers who suffered loss as a result of receiving

unsuitable advice to switch their pension savings from one pension product to

another between 5 July 2010 and 21 September 2012.

FAILINGS

57.
The regulatory provisions relevant to this Final Notice are referred to in Annex 1.

Breach of Principle 9 and rules in COB and COBS

58.
Between 26 July 2005 and 8 June 2009 Sesame advised 426 customers to invest a

total of over £6.1m in the Keydata Products. The vast majority of these sales

contained one or more of the following failings:

a. there was a mismatch between many customers’ stated investment

objectives and attitude to risk and the product sold;

b. the suitability letters provided to customers stated incorrectly that income

or capital growth was guaranteed; and/or

c. customers were advised incorrectly that the Keydata Products were low

risk.

59.
In every case reviewed by the Authority Sesame had failed to explain to customers

all of the key risks and failed to give a balanced view of the advantages and

disadvantages of the Keydata Product.

60.
The Authority found also that the risk of unsuitable sales by Sesame’s ARs would

have been diminished had it not been for Sesame’s failure to take reasonable care

to ensure the suitability of its ARs’ advice. Sesame’s considered view of the

Keydata Secure Income Bond was that it presented investors with “a considerable

amount of risk”, did not guarantee return of capital and that there was uncertainty

regarding its underlying asset base and management approach/capability. These

concerns were shared with the relevant internal committee but it failed to take

reasonable steps to prevent and/or identify the mis-selling of Keydata Products.

61.
By failing to take proper account of its own assessment of the high risk nature of

the Keydata Products, Sesame failed to undertake effective monitoring of the sales

of Keydata Products. As a result, Sesame failed to identify that ARs did not make

the investment risks clear to customers and recommended Keydata Products to

customers whose ATR did not indicate a willingness to expose themselves to the

risk of potentially losing all their capital.

62.
Sesame’s desk-based file reviewers also failed to identify the unsuitable sales of

Keydata Products and failed to consider Sesame’s review of the Keydata Secure

Income Bond. This was despite Sesame having an internal policy that where its file

reviewers could not check a product’s risk-rating by reference to Sesame’s RPL a

file reviewer was meant to contact others within Sesame with the appropriate

expertise to determine the risk-rating for the product. The desk-based file

reviewers also classified incorrectly 41 of the 45 Keydata Product sales they

reviewed as being suitable.

63.
This demonstrates that between 26 July 2005 and 8 June 2009 Sesame failed to

take reasonable care to ensure the suitability of its advice and discretionary

decisions for clients who were entitled to rely upon its judgment, in breach of

Principle 9. In addition, Sesame breached COB 5.3.5R and 5.4.3R and COBS

4.5.2R, 9.2.1R, 9.2.2R and 9.2.3R.

64.
On 4 July 2010, the Skilled Person reported that it had not found evidence of

widespread unsuitable advice and that Sesame’s compliance oversight and AR

control frameworks appeared largely fit for purpose. Nevertheless, the Skilled

Person’s findings in relation to the files it reviewed confirmed the FSA’s concerns

from its own 2009 supervisory visit that there was a very poor level of record-

keeping. In light of these findings the Skilled Person was unable to confirm

definitively the suitability of ARs’ advice.

65.
Between June and 21 September 2012, Group Risk and Group Internal Audit

identified a significant number of weaknesses within Sesame’s control environment,

a. there was inadequate testing by Sesame that ARs had read and

understood the Compliance Adviser Bulletin;

b. Network Supervision visits to ARs were not sufficiently effective in

focussing on higher risk ARs and effecting a change in behaviour;

c. Sesame’s desk-based file reviews still showed areas of significant

weakness in identifying unsuitable sales;

d. Sesame was still operating insufficient controls to prevent the sale of

products considered likely to be unsuitable by Sesame’s central control

functions;

e. that Sesame had yet to resolve issues with ARs’ record-keeping and

retrieving files from ARs;

f. the language used internally within Sesame supported the incorrect view

that ARs are Sesame’s customers rather than the end retail customers;

g. Sesame did not provide sufficient deterrence across the network as only a

small number of ARs or individual advisers were suspended or terminated

as a result of the quality of their advice;

h. Sesame’s “second line of defence” remained limited with insufficient

second line checks of Sesame policy and guidance against the Authority

Handbook to ensure compliance with regulations;

i. deficiencies in Sesame’s MI included committee MI not being detailed

enough, lacking commentary and analysis and not highlighting control

weaknesses, high-risk product MI only being produced twice a year with

the definition of high-risk products being insufficiently robust and no trend

analysis on high-risk products.

66.
The Authority’s investigation into mis-sold Keydata Products also identified further

persistent deficiencies in Sesame’s MI. In particular:

a. Sesame’s e-NBS system remained vulnerable to errors by ARs when

inputting data regarding new sales, with some higher risk sales at risk of

being miscategorised; and

b. advice to place investments into an open-architecture tax efficient wrapper

was recorded on Sesame’s e-NBS system under the wrapper and not the

underlying investment product.

67.
The above demonstrates that between 5 July 2010 and 21 September 2012

Sesame failed to take reasonable care to organise and control its affairs

responsibly and effectively, with adequate risk management systems, in breach of

Principle 3, in relation to the sale of designated investment products including, but

not limited to, pension products.

SANCTION

68.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP.

69.
Changes to DEPP were introduced on 6 March 2010. Given that the breach of

Principle 9 occurred prior to that date and the breach of Principle 3 occurred after

that date, the Authority has had regard to the provisions of DEPP in force prior to 6

March 2010 in respect of the breach of Principle 9 and the provisions of DEPP in

force from 6 March 2010 in respect of the breach of Principle 3.

70.
Guidance on the imposition and amount of penalties for misconduct, in respect of

the breach of Principle 9, which occurred prior to 28 August 2007, is set out in ENF.

We have accordingly had regard to the ENF provisions on penalty policy that were

in force at the time of the earlier misconduct as well as to those in Chapter 6 of

DEPP.

Penalty for breach of Principle 9 under DEPP 6.5.2G

71.
The Authority considers the following DEPP factors to be particularly important in

assessing the sanction for Sesame’s breach of Principle 9.

Deterrence – DEPP 6.5.2G (1)

72.
The principal purpose of a financial penalty is to promote high standards of

regulatory conduct by deterring firms who have breached regulatory requirements

from committing further contraventions, helping to deter other firms from

committing contraventions, and demonstrating generally to firms the benefits of

compliant behaviour.

Nature, seriousness and impact of the breach – DEPP 6.5.2G (2)

73.
In determining the appropriate sanction, the Authority has had regard to the

seriousness of the contraventions by Sesame, including the nature of the

requirements breached and the duration of breaches.

74.
Sesame’s breaches were serious. They involved unsuitable advice being provided to

426 separate customers, with many of those customers investing a significant

proportion of their life savings.

75.
They also revealed systemic weaknesses in Sesame’s internal controls, with file

reviewers systematically not following procedures and thus failing to check product

risk-ratings with those within Sesame who held the appropriate expertise. The

failure to detect and prevent the mis-selling of Keydata Products, despite it coming

to the attention of the relevant committee twice, revealed Sesame’s inability to

respond appropriately to the risks posed by new higher risk products and to

identify unsuitable advice in non-standard products through file reviews.

The size, financial resources and other circumstances of the firm – DEPP 6.5.2 G (5)

76.
The Authority has taken into account Sesame’s size and financial resources.

Sesame is a major IFA network with over 2,000 individual advisers. There is no

evidence to suggest that Sesame is unable to pay the penalty.

The amount of benefit gained or loss avoided – DEPP 6.5.2G (6)

77.
As noted above, Sesame and its ARs generated approximately £197,934 during the

Relevant Period in gross commission from the sale of Keydata Products.

Conduct following the breach – DEPP 6.5.2G (8)

78.
Sesame failed to identify its mis-selling of Keydata Products to its customers, or

consider the root causes, until the Authority carried out a review of its sales of

Keydata Products in 2011.

79.
Moreover, poor levels of record keeping have made it difficult to identify the actual

number of Keydata sales made through Sesame. After thorough investigation there

is still an element of uncertainty over the total number of affected customers and

total amounts invested.

80.
However, Sesame and its senior management have worked in an open and

cooperative way with the Authority before and during its investigation.

81.
Sesame has also now undertaken voluntarily to carry out a customer contact

exercise in relation to sales of Keydata Products to customers who have not

otherwise obtained redress from the FSCS. This has resulted in a total redress of

£126,445 being paid out or being offered to five Sesame customers.

Disciplinary record and compliance history – DEPP 6.5.2G (9)

82.
The Authority fined Sesame £330,000 in April 2007 for rejecting inappropriately

complaints that arose from the unsuitable sale of SCARPs, between March 2003

and October 2004. SCARPs can be highly complex investment products carrying a

high level of investment risk that, in some instances, were mis-sold by Sesame’s

legacy networks, including to retired customers who were not in a position to

replace lost capital. The Authority also found that SCARPs were at that time a new

range of complex products and Sesame’s complaint handling processes did not

recognise SCARPs as a separate product in their own right which, alongside other

facts, should have alerted Sesame to the need for specific training to ensure that

complaints handlers were consistent in their handling of SCARPs complaints.

Sesame was found to have breached rules in the part of the Handbook entitled

Dispute Resolution: Complaints (DISP) and Principles 2 and 6 of the Authority's

Principles for Businesses.

Other action taken by the Authority

83.
In determining the level of financial penalty, the Authority has taken into account

penalties imposed by the Authority on other authorised persons for comparable

behaviour.

Conclusion for breach of Principle 9 and COBS rules

84.
Sesame has agreed to settle at an early stage of the Authority’s investigation, and

therefore qualifies for a 30% (stage 1) discount under the Authority’s executive

settlement procedures.

85.
The Authority has therefore decided to impose a financial penalty of £245,000 on

Sesame for breaching Principle 9 and the relevant COB and COBS rules. Were it not

for the Stage 1 settlement discount, the Authority would have imposed a financial

penalty of £350,000 on Sesame.

Penalty for breach of Principle 3

86.
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

87.
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.

88.
The Authority has not identified any financial benefit that Sesame derived directly

from its breach of Principle 3. Step 1 is therefore £0.

Step 2: the seriousness of the breach

89.
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.

90.
The Authority considers that the revenue generated by Sesame, inclusive of its

ARs, relating to designated investment business (and thus excluding revenue

arising from mortgage intermediary or general and pure protection insurance

intermediary advice) is indicative of the harm or potential harm caused by its

breach. The Authority has therefore determined a figure based on a percentage of

Sesame’s relevant revenue. Sesame’s relevant revenue is the revenue (in the form

of commissions from product providers and fees from clients) derived by Sesame

(inclusive of its ARs) from designated investment business during the period of the

breach. The period of Sesame’s breach was from 5 July 2010 to 21 September

2012. The Authority considers Sesame’s relevant revenue for this period to be

£82,660,067.

91.
In deciding on the percentage of the relevant 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%

92.
In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly.

93.
The Authority considers the following factors to be relevant to the seriousness of

Sesame’s breach:

Impact of the breach

94.
While there was a risk of unsuitable sales to all retail investors as a result of

Sesame’s systems and controls weaknesses, Group Risk’s findings identified a

significant proportion of unsuitable sales relating to pension switching cases. From

a sample review of 55 files regarding personal pension plans, contracted-in

personal pension plans and SIPPs, Group Risk found that 12 of those customers

(22%) received unsuitable advice and noted that these all concerned customers

advised to switch from one pension product to another. Sesame has accordingly

agreed to conduct a risk-based past business review to identify and provide redress

to those customers who suffered loss as a result of receiving unsuitable advice to

switch their pension savings from one pension product to another between 5 July

Nature of the breach

95.
The weaknesses in Sesame’s systems and controls arising from the breach were

widespread across most control functions and thus had a significant combined

effect.

Whether the breach was deliberate and/or reckless

96.
The Authority has not found that Sesame acted deliberately or recklessly.

97.
Taking all of those factors into account, the Authority considers the seriousness of

the breach to be level 3 and so the Step 2 figure is 10% of £82,660,067.

98.
The figure at Step 2 is therefore £8,266,006.

Step 3: mitigating and aggravating factors

99.
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.

100. The Authority considers that the following factors aggravate the breach:

a. Sesame was told previously by the Authority on several occasions of its

concerns with many of the controls found to be deficient by Group Risk

and Group Internal Audit in September 2012;

b. Sesame has already been subject to disciplinary action by the Authority in

2007 for complaints handling as detailed above; and

c. the Authority had emphasised repeatedly, including through Enforcement

action and in other publications, the importance of principals taking

responsibility for the quality of ARs’ advice and to that end the importance

of appropriate MI, file-checking and record-keeping.

101. The Authority considers that the following factors mitigate the breach:

a. Sesame made some improvements to its systems and controls in

accordance with the recommendations made by the Skilled Person in 2009

and 2010.

b. Following the completion of the Group Risk and Group Internal Reports in

September 2012, Sesame has responded with a significant business

change programme to improve its systems and controls, including a

number of new appointments to its executive team and Board. Sesame

has committed to spending approximately £20 million on this business

change programme.

c. Sesame has also co-operated fully with the Authority during the

investigation of the breach.

102.
Having taken these aggravating and mitigating factors into account the Authority

considers that these factors balance each other out and therefore that the Step 2

figure should not be altered.

103.
The figure at Step 3 remains £8,266,006.

Step 4: adjustment for deterrence

104. Pursuant to DEPP 6.5A.4G, if the Authority 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.

105. The Authority considers that the Step 3 figure of £8,266,006 represents a

sufficient deterrent to Sesame and others, and so has not increased the penalty

at Step 4.

106. The figure at Step 4 remains £8,266,006.

Step 5: settlement discount

107. 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.

108. The Authority and Sesame reached agreement at Stage 1 and so a 30% discount

applies to the Step 4 figure.

109. The figure at Step 5 is therefore £5,786,200.

CONCLUSION

110. The Authority has therefore imposes a combined total financial penalty of

£6,031,200 on Sesame for breaching Principle 9 and the relevant COB and COBS

rules between 26 July 2005 and 30 June 2009 and for breaching Principle 3

PROCEDURAL MATTERS

Decision maker

111. The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

112. This Final Notice is given under, and in accordance with, section 390 of the Act.

Manner of and time for Payment

113. The financial penalty must be paid in full by Sesame to the Authority by no later

than 19 June 2013, 14 days from the date of the Final Notice.

30

If the financial penalty is not paid

114. If all or any of the financial penalty is outstanding on 19 June 2013, the Authority

may recover the outstanding amount as a debt owed by Sesame and due to the

Authority.

115. 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.

116. The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

117. For more information concerning this matter generally, contact Anna Couzens at

the Enforcement and Financial Crime Division of the Authority (direct line: 020

7066 1452 / fax: 020 7066 1453).

Financial Conduct Authority, Enforcement and Financial Crime Division

RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS AND

AUTHORITY GUIDANCE

The Authority’s statutory objectives, set out in sections 1B to 1E of the Act, are to secure

an appropriate degree of consumer protection, to protect and enhance the integrity of

the UK financial system and to promote effective competition in the interests of

consumers.

Section 206 of the Act provides:

“If the Authority considers that an authorised person has contravened a requirement

imposed on him by or under this Act,… it may impose on him a penalty, in respect of the

contravention, of such amount as it considers appropriate”.

Sesame is an authorised person for the purposes of section 206 of the Act. The

requirements imposed on authorised persons include those set out in the Authority’s

rules and made under section 138 of the Act.

Regulatory Provisions

In exercising its power to issue a financial penalty, the Authority must have regard to

the relevant provisions in the Authority Handbook.

In deciding on the proposed action, the Authority has also had regard to guidance set

out the in the Regulatory Guides, in particular the Decision Procedure and Penalties

Manual (DEPP).

The Principles are a general statement of the fundamental obligations of firms under the

regulatory system and are set out in the Authority Handbook. They derive their authority

from the Authority’s rulemaking powers as set out the Act and reflect the Authority’s

regulatory objectives. The relevant Principles are as follows:

Principle 3 provides:

“A firm must take reasonable care to organise and control its affairs responsibly

and effectively, with adequate risk management systems.”

“A firm must take reasonable care to ensure the suitability of its advice and

discretionary decisions for any customer who is entitled to rely upon its

judgment.”

For Sales on or after 1 November 2007

COBS 4.5.2R provides:

A firm must ensure that information:

(1) includes the name of the firm;

(2) is accurate and in particular does not emphasise any potential benefits of

relevant business or a relevant investment without also giving a fair and

prominent indication of any relevant risks;

(3) is sufficient for, and presented in a way that is likely to be understood by, the

average member of the group to whom it is directed, or by whom it is likely to be

received; and

(4) does not disguise, diminish or obscure important items, statements or

warnings.

COBS 4.5.4G provides:

In deciding whether, and how, to communicate information to a particular target

audience, a firm should take into account the nature of the product or business,

the risks involved, the client's commitment, the likely information needs of the

average recipient, and the role of the information in the sales process.

COBS 4.5.5G provides:

When communicating information, a firm should consider whether omission of

any relevant fact will result in information being insufficient, unclear, unfair or

misleading.

COBS 9.2.1R provides:

(1) A firm must take reasonable steps to ensure that a personal recommendation,
or a decision to trade, is suitable for its client.

(2) When making the personal recommendation or managing his investments, the
firm must obtain the necessary information regarding the client's:

(a) knowledge and experience in the investment field relevant to the specific type
of designated investment or service;

(b) financial situation; and

(c) investment objectives;

so as to enable the firm to make the recommendation, or take the decision, which
is suitable for him.

COBS 9.2.2R provides:

(1) A firm must obtain from the client such information as is necessary for the

firm to understand the essential facts about him and have a reasonable basis for

believing, giving due consideration to the nature and extent of the service

provided, that the specific transaction to be recommended, or entered into in the

course of managing:

(a) meets his investment objectives;

(b) is such that he is able financially to bear any related investment risks

consistent with his investment objectives; and

(c) is such that he has the necessary experience and knowledge in order to

understand the risks involved in the transaction or in the management of his

portfolio.

(2) The information regarding the investment objectives of a client must include,

where relevant, information on the length of time for which he wishes to hold the

investment, his preferences regarding risk taking, his risk profile, and the

purposes of the investment.

(3) The information regarding the financial situation of a client must include,

where relevant, information on the source and extent of his regular income, his

assets, including liquid assets, investments and real property, and his regular

financial commitments.

COBS 9.2.3R provides:

The information regarding a client's knowledge and experience in the investment

field includes, to the extent appropriate to the nature of the client, the nature and

extent of the service to be provided and the type of product or transaction

envisaged, including their complexity and the risks involved, information on:

(1) the types of service, transaction and designated investment with which the

client is familiar;

(2) the nature, volume, frequency of the client's transactions in designated

investments and the period over which they have been carried out;

(3) the level of education, profession or relevant former profession of the client.

For sales prior to 1 November 2007

COB 5.3.5R provides:

(1)
A firm must take reasonable steps to ensure that, if in the course of
designated investment business:

(a)
it makes any personal recommendation to a private customer to:

(i) buy, sell, subscribe for or underwrite a designated investment (or to
exercise any right conferred by such an investment to do so);

the advice on investments or transaction is suitable for the client

A firm must not:

(1) make a personal recommendation of a transaction…

with, to or for a private customer unless it has taken reasonable steps to ensure
that the private customer understands the nature of the risks involved.

Decision Procedure and Penalties Manual (DEPP) and Enforcement ENF

Guidance on the imposition and amount of penalties is set out in Chapter 6 of DEPP.

Changes to DEPP were introduced on 6 March 2010. Given that the breach of Principle 9

occurred prior that date and the breach of Principle 3 occurred after that date, the

Authority has had regard to the provisions of DEPP in force prior to 6 March 2010 in

respect of the breach of Principle 9 and the provisions of DEPP in force from 6 March

2010 in respect of the breach of Principle 3.

Guidance on the imposition and amount of penalties for misconduct that occurred prior

to 28 August 2007 is set out in ENF. We have accordingly had regard to the ENF

provisions on penalty policy that were in force at the time of the earlier misconduct as

well as to those in Chapter 6 of DEPP.

Enforcement Guide (EG)

The Authority’s approach to taking disciplinary action is set out in Chapter 2 of EG. The

Authority’s approach to financial penalties and public censures is set out in Chapter 7 of

EG.

EG 7.1 states that the effective and proportionate use of the Authority’s powers to

enforce the requirements of the Act, the rules and the Statements of Principles for

Approved Persons will play an important role in the Authority’s pursuit of its regulatory

objectives. Imposing financial penalties and public censures shows that the Authority is

upholding regulatory standards and helps to maintain market confidence and deter

financial crime. An increased public awareness of regulatory standards also contributes

to the protection of consumers.

36

ANNEX 2: LIST OF KEYDATA PRODUCTS SOLD BY SESAME


Secure Income Plan 7


Defined Income Plan 6


Defined Income Plan 7