FSA fines Tenon over structured products; more firms to follow

The UK’s Financial Services Authority (FSA) has fined RSM Tenon Financial Services (Tenon) £700,000 for “significant failings” in its advice and sales processes regarding Lehman-backed structured products, and for lacking sufficient systems and controls to prevent unsuitable advice being given to customers in its structured product and pension-switching business.

The regulator says it is the first enforcement action following its review last year of marketing and distribution of structured products, particularly those backed by Lehman Brothers. Failings by two other firms have also come to light and they are likely to face sanctions, says Leigh Calder, spokesperson for the FSA.

Margaret Cole, FSA director of enforcement and financial crime says: “This is the first action we have taken for advice failings relating to Lehman-backed structured products following our recent review, and we acted swiftly and decisively to return money to investors as quickly as possible. We will continue to take tough action where we find evidence firms are giving unsuitable advice to investors.”

In relation to sales of Lehman-backed structured products in 2007–2008, the FSA says Tenon failed to fully assess the risks, did not provide suitable advice to customers, and failed to implement and maintain appropriate compliance monitoring to control the use of promotional material.

In relation to Tenon’s structured products and pension-switching business, the FSA say it failed to have effective risk management systems in place to manage and control its affairs – and ultimately failed to prevent or minimise the risk of unsuitable sales. 

In addition to the fine, Tenon will have to review its sales of Lehman-backed structured products. Customers that received unsuitable advice will be able to sell their products back to the firm and have their investment reimbursed. The company will also have to review sales of other structured products and pay appropriate redress where unsuitable advice was given.

Tenon will have to review the pension-switching business it transacted between 2006 and 2009 to assess the suitability of recommendations made to customers and, if appropriate, implement a customer-redress programme.

Lastly, Tenon will appoint an FSA-approved independent consultant or auditor to review its sales and compliance processes for all investment products.

“Firms giving investment advice must ensure they fully assess clients’ needs and make suitable recommendations – they must also have the necessary systems and controls in place to demonstrate this. We take failure in this area seriously, and the fine and other actions announced today demonstrate our commitment to credible deterrence,” Cole says.

The FSA will oversee the firm’s past business reviews and redress process. An independent third party will review the actions taken by the firm, leaving open the possibility of further sanctions should its actions not be considered sufficient. “As always, if we identify non-compliant behaviour, of course we will take action,” says Calder.

Tenon co-operated fully with the FSA and agreed to settle at an early stage of the investigation, qualifying for a 30% reduction in penalty, which would have been £1 million otherwise, the FSA says.