The Financial Conduct Authority (FCA) has today fined both Credit Suisse International (CSI) and Yorkshire Building Society (YBS) for failing to ensure financial promotions for CSI’s Cliquet Product1 were clear, fair and not misleading. CSI was fined £2,398,100 and YBS’s fine was £1,429,000.
The Cliquet Product was designed by CSI to provide capital protection and a guaranteed minimum return with the apparent potential for significantly more if the FTSE 100 performed consistently well. The probability of achieving only the minimum return was 40-50% and the probability of achieving the maximum return was close to 0%. Despite this CSI’s and YBS’s financial promotions marketed the potential maximum return on the product as a key promotional feature.
The target market for the Cliquet Product was described by CSI as "stepping stone customers" who were conservative and risk averse. The product was typically sold to unsophisticated investors with limited investment experience and knowledge through a number of distributors. 83,777 customers invested a total of £797,380,716 in the product; with YBS being the distributor responsible for approximately 75% of the total amount invested.
The maximum return figure was given undue prominence in both CSI’s product brochures for the Cliquet Product, which YBS approved and provided to their clients, and in YBS’s own financial promotions for the product, some of which also did not clearly explain how returns were calculated.
Tracey McDermott, FCA’s director of enforcement and financial crime said:
"It is crucial that firms consider the needs of their customers from the time that products are being designed through to their marketing and sale. The information provided to customers forms an important part of this. Financial promotions are often the primary source of information for consumers and in this case CSI and YBS let their customers down badly. These promotions were a serious breach of the requirement to be clear, fair and not misleading.
"CSI and YBS knew that the chances of receiving the maximum return were close to zero but they nevertheless highlighted this as a key promotional feature of the product. This was unacceptable."
In September 2010, following concerns raised by third parties, including Which?, YBS changed its promotions so that undue prominence was no longer given to the potential maximum return. However, YBS continued to cite the potential maximum return and to give an unfair impression of the likelihood of achieving it. CSI also reviewed its promotions in response to the third parties’ concerns, but decided not to change its product brochure significantly.
In addition, the FCA found that CSI failed to have a procedure in place for a complete review of their long running promotions on a periodic basis. If CSI’s processes had included such a review, this may have resulted in the problems with the product brochure being remedied earlier.
Both firms agreed to settle at an early stage of the FCA’s investigation and therefore received a 30% settlement discount. Today’s fines are the first time that the FCA has taken action against both the manufacturer of a product and its distributor simultaneously.
Notes for editors
- The final notice for CSI[1].
- The final notice for YBS[2].
- CSI and YBS have agreed to contact customers who bought the issues of the Cliquet Product available between 1 November 2009 and 17 June 2012 (including some customers who purchased these issues immediately before this period). They will be offered the opportunity to exit the product without penalty (where applicable) and interest up to the date they exit based on a fixed term deposit rate. Customers who CSI and YBS have agreed to contact who are no longer in the Cliquet Product will also be offered the same rate. Some customers will already have been contacted. YBS customers who have questions can visit their website[3]. All other customers should visit Credit Suisse’s website[4]. CSI has set up a dedicated call centre for affected customers. This can be reached on 0800 052 0044.
- On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers. You can find more information about the FCA, as well as how it is different to the PRA.
- The FCA is interested in how behavioural economics can help understand why consumers make the decisions they do. Some of the issues raised in this case will be examined as part of its ongoing work.
1The Cliquet Product is a capital protected 4, 5 or 6 year structured deposit product which guarantees a minimum return. In addition, if the sum of the returns of the FTSE Index over each six month period (with the return in each period capped and floored) exceed the minimum return, the deposit pays the sum of the FTSE returns. For the maximum return to be achieved the FTSE 100 was required to rise by AT LEAST the cap level in every 6 month period. The Cliquet Product was sold by distributors under the following names - Protected Capital Plus Account, Guaranteed Capital Account, Protected Capital Account, Capital Plus Account, Guaranteed Capital Plus Account, Guaranteed Investment Account.