More bad banks

Credit Suisse and Yorkshire Building Society join a long list of banks sitting on the regulatory naughty step after massive fines imposed by the Financial Conduct Authority (FCA).

The FCA has fined Credit Suisse £2.4m and Yorkshire Building Society £1.4m for financial promotions failures relating to structured investment products.

Credit Suisse designed the Cliquet Product and Yorkshire Building Society sold it to their customers, resulting in both getting fined for their roles in the failure.

The Credit Suisse Cliquet Product was designed to offer investors capital protection and a guaranteed minimum return with the apparent potential for significantly greater investment returns should the FTSE 100 index of leading UK company shares perform consistently well.

Despite promises made in financial promotions, the FCA concluded that the chances of investors getting the minimum advertised return was only 40-50%.

Investors had a close to zero chance of getting the maximum return being advertised by the providers.

Regulated firms have to ensure their financial promotions are clear, fair and not misleading. However, Credit Suisse and Yorkshire Building Society gave the unlikely maximum return figure an “undue prominence” according to the FCA.

Around 84,000 investors put £797m into the product, with three-quarters of this coming from customers of Yorkshire Building Society.

Structured investment products like these are rarely suitable for retail investors, and it is unsurprising to hear that financial promotions for these products were confusing.

One positive outcome from the Retail Distribution Review, introduced at the end of 2012, is the effective withdrawal of banks from the provision of financial advice.

Banks were always those responsible for selling massive volumes of structure investment products, when in reality these need expert and independent financial advice to ensure they are only recommended where suited to meeting specific investment objectives.

Do get in touch if you would like to better understand how structured investment products fit into your own portfolio and whether more suitable alternatives exist.

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