FSA fines national financial advice firm GBP700,000 for failings relating to Lehman-backed structured product sales

The Financial Services Authority (FSA) has today fined RSM Tenon Financial Services Limited (Tenon) GBP700,000 for significant failings in its dvice and sales processes relating to Lehman-backed structured products, and for having poor systems and controls to prevent unsuitable advice in its structured product and pension switching business.

This is the first enforcement action resulting from the FSA's review of the marketing and distribution of structured products, particularly those backed by Lehman Brothers, concluded in October 2009. The FSA found that, in relation to its sales of Lehman-backed structured products between November 2007 and August 2008, Tenon failed to treat some of its customers fairly. It breached Principle 3 of the FSA's Principles for Businesses by failing to take reasonable care to organise and control its affairs responsibly and effectively, and Principle 9 by failing to take reasonable care to ensure the suitability of its advice to its customers. Specifically, the FSA found that Tenon;

• failed to fully assess the risks of structured products and ensure advisers considered those risks when providing advice to customers;
• failed to provide suitable advice to its customers and/or failed to demonstrate the suitability of its advice by recording insufficient personal and financial information on customers' files; and
• failed to implement and maintain appropriate compliance monitoring to control the use of non-compliant direct offer financial promotions.

In addition, in relation to Tenon's structured products and pension switching business more generally, the FSA found that the firm 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.

As a result of these failings, the FSA has imposed a fine of GBP700,000 on the firm. In addition, Tenon will:

• conduct a past business review of all its sales of Lehman-backed structured products. Customers that received unsuitable advice will be able to sell their product to Tenon and have the money they invested reimbursed plus interest;
• review sales of other structured products between 1 November 2007 and 1 December 2009, and pay appropriate redress where unsuitable advice was given;
• conduct a review of pension switching business it transacted between 6 April 2006 and 1 December 2009 to assess the suitability of recommendations made to customers and, if appropriate, implement a customer redress programme; and
• instruct a skilled person to undertake a review of its current sales and compliance processes relating to the sale of all investment products, to assess their appropriateness and the suitability of recommendations made to customers.

The FSA will oversee the firm's past business reviews and redress process, and an independent third party will review the actions taken by the firm.

Margaret Cole, FSA director of enforcement and financial crime, said:

"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 very seriously and the fine and other actions announced today demonstrate our commitment to credible deterrence.

"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 in order to return money to investors as quickly as possible. We will continue to take tough action where we find evidence that firms are giving unsuitable advice to investors."

Tenon co-operated fully with the FSA and agreed to settle at an early stage of the FSA's investigation, therefore qualifying for a 30% reduction in penalty. Were it not for this discount, the FSA would have imposed a financial penalty of GBP1m.

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