FSA fines Standard Life £2.45m over Pension Sterling Fund failings

Standard Life has been fined £2.45 million by the Financial Services Authority (FSA) for ‘serious systems and controls failings’ that resulted in the production of misleading marketing material for its Sterling Pension Funds.

The regulator said the Sterling Pension Fund’s customers, of which there were 98,000 as of 23 December 2008, had been misled about underlying investment risks

It found that between 10 July 2006 and 28 February 2009, Standard Life Assurance Limited (SLAL) failed to ensure there were proper systems and controls over the fund, specifically in relation to the marketing material produced. This resulted in a risk of unexpected capital losses being incurred for customers invested in the fund.

The regulator also found there had been an absence of a ‘prompt and full investigation’ of the concerns that arose about the marketing material.

Furthermore:

• The FSA investigation concluded that despite the majority of the fund being invested in floating rate notes by July 2007, marketing material issued by SLAL referred to the fund as being wholly invested in cash;
• It found there were no adequate systems or controls in place to ensure that marketing material issued accurately reflected the investment strategy for the fund;
• It concluded that customers had been misled as to the true nature of the investments held by the fund and had been given misleading information on the risk of capital losses.

The risk of unexpected consumer losses was demonstrated by the reduction in value of the fund by 4.8%, approximately £100 million, on 14 January 2009. 

SLAL paid a total of £102.7 million into the fund at the beginning of 2009 to restore the value the investors’ holdings to the position they would have been in prior to the fall in the unit price. 

In addition to this capital injection, SLAL also contacted existing customers identified as having received poorer quality marketing material in order to determine whether any further compensation could be required in their individual cases. 

The insurer 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 these systems and controls in relation to the fund. SLAL outsourced its marketing material to a third party.

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