FSA fines MLP Private Finance plc 100,000 for regulatory failings

MLPs advisers were trained to sell endowments to meet the needs of long term savings (usually for future house purchase) and pension provision when alternative products were available to meet such needs more appropriately. These apparently formulaic recommendations were unsuitable. In the FSAs view, the failings arose from MLPs attempt to adopt the business strategy of its German parent without giving adequate consideration to the unique features of the UK financial services market and UK regulatory requirements.

The problems described above arose from MLPs failure to monitor its investment staff and failure to put in place effective controls to assist this monitoring. Carol Sergeant, Managing Director for Regulatory Processes and Risk at the FSA, said:

"Had it not been for prompt intervention by the regulator, a considerable number of UK consumers could have been sold products that were unsuitable for their needs. Our timely action ensured that the interests of UK customers were protected and that it has not been necessary to initiate a large consumer compensation exercise.

"All firms, no matter how experienced they are in their home markets, must ensure that their selling practices are specifically tailored to meet the needs of their UK customers in the context of the UK market. MLP had failed to research UK regulatory standards thoroughly and, as a result, did not establish and implement appropriate compliance systems before commencing operations."

Early identification of the problems and intervention by the regulator meant that the impact of MLP's failings was largely mitigated. However, without the regulators intervention, MLPs sales practices could have led to a considerable number of customers being recommended products, such as endowment policies, that were not suitable for their needs and circumstances. In fact, only a handful of customers were affected. All were subsequently visited by MLP's compliance officer and appropriate remedial action taken.

MLPs failings are made more serious by the following particular factors:

• They indicated a formulaic approach to customer recommendations resulting from a failure , properly to assess and research the UK financial services market and, as a result, a failure to take appropriate steps to comply with regulatory standards in the UK;

• They were identified by the regulators staff and not by MLP whose compliance staff had, as a result of the breach of MLPs own procedures, been unaware of investment business being written by MLPs advisers; and

• MLPs ambitious plans for growth, the vulnerability of its target market (young professionals, shortly after graduation from university) and the inexperience of its advisers made it imperative that its procedures, systems and controls were of the highest quality to ensure that appropriate considered recommendations were made in compliance with UK regulatory standards. MLP failed to implement and monitor adherence to such procedures effectively.

On the other hand, the FSA recognises that the impact, actual and potential, of MLPs failings has been mitigated to the extent that:

• The problems were identified at a very early stage, albeit by the regulator, and accordingly affected very few customers.

• Once the failings were identified, MLP, at the regulator's request, temporarily ceased conducting investment business, re-trained its sales force and reviewed all business written.

• Subsequently MLP has significantly increased the resource available to monitor its investment staff and restructured its business to improve controls.

• MLP has also appointed third party compliance consultants to assist it with conducting business in compliance with the FSAs Rules and Principles.

Nevertheless, while recognising the steps taken by MLP to remedy the problems and its commitment to resolve the issues arising, the FSA notes that the full co-operation given by MLP was initially largely in response to the regulators actions and instigation. However, more recently, MLP has proactively extended the remit of the third party compliance consultants and further increased its compliance resource.

Notes for editors

1. MLP Private Finance plc was formerly known as Marschollek Lautenschlager & Partners.

2. MLPs sales process was geared towards to identifying four needs for all its clients. These needs were long and short-term savings, pension provision and income protection.

3. A total of 58 items of regulated business had been written by staff who had not been authorised and registered or who had not been classified as competent, of which 16 had been sold to customers who were not the advisers themselves. These recommendations were made to customers without the knowledge or approval of MLPs compliance staff.

4. The penalty was imposed pursuant to Section 206 Financial Services and Markets Act 2000 in respect of breaches by MLP of Rules 1.8.8(5), 2.6.4(2), 7.1.2, 7.15 and 7.2.1(1)(a) of the Personal Investment Authority (the PIA Rules), Rules F29.8.5(1), F28.3(1), F29.5.1(1) and F29.17 of the Adopted FIMBRA Rules (the FIMBRA Rules) and Principle 9 of the Statements of Principle of the Securities and Investments Board (the SIB Principles). Full details of the case are available from the FSA.

5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection of consumers; and fighting financial crime.

6. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.