In June 2014, the financial regulator, the Financial Conduct Authority (FCA), imposed a fine of £2,398,100 on Credit Suisse International and a fine of £1,429,000 on Yorkshire Building Society for breaches of the FCA rules and principles regarding financial promotions and client communications.
The Yorkshire had been distributing promotional material from Credit Suisse which promoted Cliquet, one of the Swiss bank’s structured products. The Cliquet investment promised to protect customers’ initial capital and provide a minimum additional return of between 4% and 23.5%, while there was a chance of additional returns on top of this minimum return dependent on the performance of the FTSE 100 index. Cliquet was sold under the product names Protected Capital Plus Account, Guaranteed Capital Account, Protected Capital Account, Capital Plus Account, Guaranteed Capital Plus Account and Guaranteed Investment Account.
The FCA found that Credit Suisse’s product brochure, which the Yorkshire approved for distribution to its customers, and the Yorkshire’s own promotional material both over-emphasised the maximum possible return, which could be as much as 72%. It was extremely unlikely that this return would be achieved, and there was almost a 50% chance that the product would only provide the minimum return.
For a period of several months, the Yorkshire’s direct mail letters concerning Cliquet gave this maximum return figure “significant prominence on the front page”. On some of its promotional posters, the maximum figure was displayed in “distinctive colours, in bold fonts and in significantly larger font sizes than anything else on the page,” according to the FCA’s Final Notice. Credit Suisse’s brochures were said to have given practically the same prominence to both the minimum and maximum return figures.
In September 2010, the Yorkshire changed its promotional material so that the maximum return was given reduced prominence. This came after consumer group Which? had contacted them with its concerns over the marketing of the product. However, the 72% figure was still clearly visible to anyone who read the promotion closely, and the FCA says that after this time, the Yorkshire continued to give a misleading impression of the probability that the maximum return would be achieved.
Some 83,777 customers purchased the Cliquet product, investing a total of £797,380,716. Around 75% of the sales were made via the Yorkshire. These clients, most of whom were said to be inexperienced investors, will now be contacted by the firms concerned and offered the chance to withdraw from the product without incurring the usual exit penalties. An additional interest payment will also be made to those who take up this option.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said that the firms had
“let their customers down badly.”
The Yorkshire cancelled its distribution agreement with Credit Suisse in December 2012.
All firms should note the content of the disciplinary notices issued to Credit Suisse and the Yorkshire. FCA Principle 7 requires all financial promotions and other communications with customers to be “clear, fair and not misleading.” There is no indication that any of the communications in this case contained any statements that were factually incorrect, yet the FCA still has grounds for taking action. The FCA has a set of detailed rules regarding financial promotions, including a number of requirements as to how information should be displayed and communicated.