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FSA fines N&P £1.4 million for Keydata failure

£51m payout for customers and FSCS

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The FSA has fined Norwich & Peterborough BS £1.4m for Keydata advice failure

The Financial Services Authority (FSA) has fined Norwich and Peterborough Building Society (N&P) £1.4 million for failing to give its customers suitable advice in relation to the sale of Keydata products.

N&P will make ex gratia payments to all customers to ensure they do not lose out as a result of their investment. N&P will also reimburse the Financial Services Compensation Scheme (FSCS) for payments the FSCS has made to N&P customers. The total payout is expected to reach around £51 million.

What did N&P do wrong over Keydata?

During a period of over three years N&P advised 3,200 clients to invest in Keydata’s products. N&P failed to properly assess the financial circumstances of many of its customers, designating them as having a higher tolerance of risk than was appropriate. This led to unsuitable sales.

Some customers were moved out of low risk products such as deposit accounts into Keydata investments, putting their income and capital at risk. Many of these customers were approaching or already in retirement, and could not afford to lose their money. The average age of those who invested in the Keydata Products through N&P was 62.

In June 2007 N&P carried out a review prompted by the realisation that Keydata products formed 30% of all investment products sold during the first three months of that year. Their compliance team produced a report setting out concerns about the suitability of advice given to customers. No effective action was taken and Keydata sales remained consistently high. N&P generated approximately £2.7m in commission between November 2005 and June 2009 from the sale of Keydata products.

‘N&P failed in its basic duty’

Tracey McDermott, FSA acting director, enforcement and financial crime, said: ‘N&P failed in its basic duty to provide suitable advice to its customers, despite an internal compliance report pointing out that there were problems as early as 2007.

‘Firms cannot treat customers fairly unless they pay attention to their financial circumstances and attitude to risk when they make recommendations. This is the only way to prevent widespread mis-selling like this.’

N&P has also agreed to commission an independent review of sales of other financial products sold by their Financial Advice Service, and will pay redress where appropriate.

Keydata – what happened?

Keydata was placed into administration in 2009, when the FSA said that the company had broken tax rules and was declared insolvent. Almost 30,000 investors lost £450m when the firm failed.

The firm provided a range of services, from administration and distribution of complex investment vehicles structured products, venture capital trusts and life settlement plans. It initially fell foul of the regulator when it described its complicated products as simple investment ISAs.

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