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Credit Suisse and Yorkshire Building Society fined for "unfair and misleading" financial promotions


Two financial firms have been fined a combined £3.8 million for failing to ensure that the risks of a product marketed to "unsophisticated and risk-averse" investors were highlighted in their marketing promotions.

Both Credit Suisse International, which designed the 'Cliquet' investment product, and Yorkshire Building Society, which promoted the product to its customers, marketed the potential maximum return of the product as a key promotional feature, according to the FCA. However, the chance of the product achieving this maximum return was close to 0%, while there was a 40-50% chance that investors would only receive the minimum return, the FCA said.

Both firms received a 30% discount for agreeing to settle with the FCA at an early stage of its investigations. The enforcement action is the first that the FCA has taken against both the manufacturer of a product and its distributor at the same time. Although a number of firms distributed the product, Yorkshire Building Society was responsible for 75% of the total amount invested, the FCA 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," said Tracey McDermott, the FCA's director of enforcement and financial crime. "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 Credit Suisse and Yorkshire Building Society 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," she said.

Both firms have agreed to contact customers who bought the product based on the promotions running between 1 November 2009 and 17 June 2012 to give them the opportunity to cancel without penalty, the FCA said. These customers will be given interest on their investment up to the date they exit based on a fixed term deposit rate. Those contacted who no longer have the product will be offered the same rate.

The target market for the Cliquet product was described by Credit Suisse as "stepping stone customers", meaning those who were generally conservative and risk averse. A total of 83,777 customers who were typically "unsophisticated investors with limited investment experience and knowledge" invested over £797 million in the product, the FCA said.

The product was designed to provide capital protection and a guaranteed minimum return, with the apparent potential for "significantly more" if the FTSE 100 performed consistently well. The maximum return figure, which investors had practically zero chance of receiving, was given "undue prominence" in both Credit Suisse's product brochures, which Yorkshire Building Society approved and provided to its clients, and in Yorkshire's own promotions for the product. Some of Yorkshire's promotions also did not clearly explain how returns were calculated, the FCA said.

Yorkshire took steps to amend its promotions in September 2010 after third parties, including consumer body Which?, raised concerns about the product. However, it "continued to site the potential maximum return and to give an unfair impression of the likelihood of achieving it", the FCA said. Credit Suisse also reviewed its promotions in response to these concerns, but decided not to make significant changes. It also failed to have a procedure in place for reviewing long-running promotions on a periodic basis, the FCA said.

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