St. James's Place Unit Trust Group Limited

FCA action

fine

1

in fines

£250k

most recent

November 2003

• Fined £250,000 on 24 November 2003

  1. The FSA gave St James's Place UK plc (SJP-UK), St James's Place International plc (SJP International) and St James's Place Unit Trust Group Ltd (SJP-UT) a decision notice on 24 November 2003 which notified the firms that, pursuant to section 206 of the Financial Services and Markets Act 2000 (the Act), the FSA had decided to impose a financial penalty against you in the amount of £250,000. 2. SJP-UK, SJP International and SJP-UT have confirmed that it does not intend to refer the matter to the Financial Services and Markets Tribunal. 3. Accordingly, for the reasons set out below and having agreed with SJP-UK, SJP International and SJP-UT facts and matters relied on set out below the FSA imposes a financial penalty on you in the amount of £250,000 (Penalty). (1) Rule 7.1.2(1) and Rules 5.1.1(1) and (2) of the Personal Investment Authority (PIA) and Principle 9 of PIA's Statements of Principle (the PIA Principles) in the period from January 2000 to 1 December 2001 (N2), and (2) Rule 3.2.6 in the part of the FSA Handbook entitled Senior management, systems and controls (SYSC) and Principle 3 of the FSA's Principles for Businesses (the FSA Principles) in the period from N2 to 13 January 2003. 4. The fine is apportioned equally between the three companies, which are subsidiaries of St. James's Place Wealth Management Group plc. SJP-UK, SJP International and SJP-UT are referred to collectively below as St James's Place or the St James's Place Companies. Reasons for the action Conduct in Issue - Summary 5. The FSA decided to impose a financial penalty on St James's Place in respect of breaches of the PIA and FSA Rules and Principles specified above. These breaches related to serious record-keeping inadequacies in connection with recommendations made to customers by their Appointed Representatives to surrender and replace existing investment contracts that had previously been arranged by competitor product providers (these two connected transactions being referred to together below as a replacement sale) and their monitoring of these transactions. 6. In particular, deficiencies in the content and implementation of St James's Place's procedures for monitoring replacement sales failed to detect, and prevent, serious deficiencies in record-keeping in connection with replacement sales. As a result of these deficiencies it was necessary to obtain further information in order to determine whether the replacement sale was suitable for the investor. 7. These failings exposed investors to the risk of surrendering existing investment contracts and committing money to new investment contracts in circumstances where this may not have been in their interests. 8. By virtue of the above failings, St James's Place acted in breach of PIA and FSA Rules and Principles. Seriousness of misconduct 9. By virtue of these matters, St James's Place has demonstrated failings that demand a significant financial penalty. These failings are viewed by the FSA as particularly serious in the light of the following factors: (1) the deficiencies were serious in nature. They arose from serious systemic weaknesses in St James's Place's processes for monitoring replacement sales. The FSA places very great emphasis on the importance of adequate monitoring systems to ensure compliance with regulatory rules and standards. This requirement is particularly important in relation to replacement sales by virtue of the higher risks they present of inappropriate advice being given; (2) they occurred notwithstanding the fact that regulatory guidance had been issued to the industry during 1994. This guidance reminded firms of the particular importance of implementing appropriate and effective monitoring procedures in replacement sales to ensure compliance with regulatory standards given the high risk they present as outlined above. The FSA is of the view that it is imperative that, when detailed regulatory guidance is issued, firms and their senior management react to it in a timely and effective manner; (3) they were widespread. The size and nature of St James's Place's distribution network meant that the risks associated with these failures affected a large number of consumers; (4) they were not detected by St James's Place. They were only identified by a PIA Supervision visit to SJP-UK during August 2001. This was despite disciplinary proceedings previously taken by LAUTRO against St. James's Place UK plc during 1994 on the grounds of similar failings, the identification of significant inadequacies in the documentation of replacement sales, and in the monitoring of these transactions, by PIA Supervision (Supervision) visits to St James's Place during 1996 and 1998. These deficiencies should have alerted St James's Place to the need to ensure that their monitoring processes in respect of replacement business were adequate and operating effectively; and (5) they continued over a prolonged period of time. They occurred from 1 January 2000 and were not fully rectified until 13 January 2003, a year and a half after they were identified by PIA and as a result of the investigation by the FSA's Enforcement Division (Enforcement). 10. While the failings in this case merit a significant financial penalty, the FSA considers that they have been mitigated by the co-operation demonstrated by St James's Place and the action taken to address those failings and the cost of doing so. 11. This action has included since January 2002 appointing an appropriately qualified Skilled Person under Section 166 FSMA (the Skilled Person) and responding to guidance given by the Skilled Person by bringing about changes to St James Place's existing processes for monitoring replacement business and implementing these processes in a more effective manner. 12. The Skilled Person concluded that St James's Place: (1) recognises that replacement business is a higher risk than most other new business; (2) has appropriately recognised the importance of suitability in giving advice to its clients; but (3) in the past, has not attached enough importance to the maintenance of sound evidential standards of documentation in client specific files. The Skilled Person did not identify any systemic issues affecting the suitability of replacement business. 13. Accordingly, St James's Place has received credit for the above in the amount of the financial penalty the FSA proposes to impose. Without this level of co-operation, the financial penalty would, given the aggravating factors described above have been substantially higher.