This time the penalty was £165,000 for 2,000,000 newspaper inserts and 236,000 mailings misleadingly promoting high income and precipice bonds.
Topic: Financial services
Who: The Financial Services Authority and Chase de Vere Investments Plc
When: December 2003
Before its merger with MX Money Extra Financial Solutions Limited, creating Chase de Vere Financial Solutions with effect from 1 June 2003, Chase de Vere Investments Plc issued a direct offer promotion offering products including high income and precipice bonds. The promotion was entitled "Your guide to investment recovery" and it offered four separate products: a UK growth cocktail fund, a corporate bond cocktail fund, an enhanced income plan and an enhanced growth plan.
The promotional material went out by way of inserts in two million national newspapers and was also directly mailed to 236,000 prospective customers.
A respectable 259 recipients responded positively, but they were later to receive a letter from Chase de Vere offering redress. This followed enquiries by the FSA's financial promotions monitoring team: they were not happy that the products were not capital guaranteed, that two of the four products were complicated stock market-linked investments that involved detailed formulae to determine investment return and exposed investors to significant losses of capital in certain circumstances.
In the FSA's view, taken as a whole, the promotion was not "clear, fair and not misleading" and significant risk factors were not given due prominence.
The FSA were doubly unimpressed, since a number of these defects had previously been identified in earlier Chase de Vere promotional material and taken up with Chase de Vere at the time. At that time, Chase de Vere disputed whether some of the FSA's criticisms were justified, but it nevertheless agreed that in future promotions it would take the FSA's concerns into account.
Unfortunately, owing to its unsatisfactory internal compliance systems, proper procedures were not put into place to ensure that the previous defects were rectified.
In all the circumstances the FSA fined Chase de Vere £165,000 and required them to contact all 259 respondents to the initial promotion, notifying them of the failings, clarifying the misleading impressions given and offering redress.
The FSA also required Chase de Vere to give the respondents the opportunity to cancel their investment without loss, and by the end of 2003, 14 had accepted this offer.
Going forward, Chase de Vere, in its new incarnation Chase de Vere Financial Solutions, has arranged for the vetting and approval of financial promotions to be dealt with by its parent company's in-house compliance department.
Why this matters:
The FSA made it quite clear that had it not been for Chase de Vere's open and cooperative approach to the FSA's investigation, the financial penalty might have been even higher. Nevertheless, following a £100,000 penalty earlier in 2003 on another unfortunate advertiser, the FSA is leaving the industry in little doubt that it means business in terms of its enforcement action against those it regards as breaking the rules. Those involved in advertising and selling general insurance products and those advertising and selling mortgages should take particular heed, as they will be inside the FSA "tent" from October 2004 and January 2005 respectively.