The Cliquet Product was designed by CSI to provide capital protection and a guaranteed minimum return with the apparent potential for significantly more if the FTSE 100 performed consistently well.
However, the UK regulator pointed out that the probability of achieving the minimum return was 40% to 50%, while the probability of achieving the maximum return was close 0%.
Despite this, CSI’s and YBS’s financial promotions marketed the potential maximum return on the product as a key promotional feature.
The FCA said the target market for the Cliquet Product was described by CSI as “stepping stone customers” who were conservative and risk averse. It was typically sold to unsophisticated investors with limited investment experience and knowledge through a number of distributors – the largest of which was YBS.
Druing the three years it was sold between 2009 and 2012, 83,777 customers invested a total of £797,380,716 in the product; with YBS being the distributor responsible for approximately 75% of the total amount invested.
CSI was fined £2,398,100, while YBS received a fine of £1,429,000.
The FCA said the maximum return figure was given undue prominence in both CSI’s product brochures for the Cliquet Product, which YBS approved and provided to their clients, and in YBS’s own financial promotions for the product, some of which also did not clearly explain how returns were calculated.
Tracey McDermott, FCA’s director of enforcement and financial crime said: “It is crucial that firms consider the needs of their customers from the time that products are being designed through to their marketing and sale. The information provided to customers forms an important part of this.
"Financial promotions are often the primary source of information for consumers and in this case CSI and YBS let their customers down badly. These promotions were a serious breach of the requirement to be clear, fair and not misleading.
“CSI and YBS knew that the chances of receiving the maximum return were close to zero but they nevertheless highlighted this as a key promotional feature of the product. This was unacceptable.”