Standard Life has been ordered to pay £2.45m for failings surrounding the pension sterling fund. At the heart of the issue from the FSA point of view was the misleading marketing. The fund said it was in cash. The fund was not – much of it was in floating notes backed by mortgage securities including sub prime ones. That is not cash. It cost Standard £102.7m to compensate investors. A good thing too. It is the most obvious example of life office foray into the sort of investments that brought the world economy crashing to its knees. Standard having to pay compensation of such an order, will make many more careful in future.
But the fine almost pales in comparison. The FSA enforcer-in-chief Margaret Cole when ’slapping on the fine’ as the journalistic parlance goes, said it was about credible deterrence. I don’t think it is. I doubt Standard was malicious. Its actions in this case fit on the scale somewhere between reckless and incompetent and I actually think it tends to the latter. I also think it is more difficult to deter incompetence than you might think.
Standard, I suppose, is deterred because it forks out again, and has to face all these journalists reminding their readers and listeners how they got it wrong. Policyholders see that Standard Life has done something wrong in regulatory terms.
It may be triply rather than doubly careful.
But from reading the FSA statement, Standard did not take long to put things right. It took all the appropriate action to help investors and to make sure it didn’t happen again. Then it was fined. This may not be a popular view. But I’m not sure about this fine and whether it was really necessary and therefore credible at all.
The FSA adds that Standard Life proactively paid a total of £102.7m into the fund to restore the value of the investors’ holdings to the position they would have been in prior to the fall in the unit price.
In addition Standard Life contacted existing customers identified as having received poorer quality marketing material in order to determine whether any further compensation may be required in their individual cases.
The FSA says Standard Life also commissioned a report by an independent third party into the systems and controls relating to the marketing material issued in respect of the fund and improving the systems and controls.
FSA director of enforcement and financial crime Margaret Cole says: “The FSA takes the issue of misleading financial promotions very seriously and the fine announced today demonstrates our commitment to the principle of credible deterrence. It is critical that consumers are given an accurate understanding of the nature of investment products and the risks involved. Without this information, consumers are unable to make informed decisions about whether investments are suitable for their individual investment strategy.
