LONDON Britain's financial conduct watchdog handed out more than million-pound fines to Credit Suisse and Yorkshire Building Society for promising unrealistic returns to investors who had limited market knowledge.
The Financial Conduct Authority (FCA) said in a statement on Monday that it had fined Credit Suisse International (CSI) 2.4 million pounds ($4 million) and Yorkshire Building Society (YBS) 1.4 million pounds, its second and third biggest fines for marketing failures related to investments totalling 797 million pounds.
"These promotions were a serious breach of the requirement to be clear, fair and not misleading," the watchdog's director of enforcement, Tracey McDermott, said.
It was also the first time that the watchdog, launched in April 2013 with a specific remit to protect consumers after a string of mis-selling scandals spanning decades, has fined the producer and distributor of a product at the same time.
Credit Suisse told customers that its Cliquet deposit product provided capital protection and a guaranteed minimum return, with the apparent potential for significantly more if Britain's FTSE 100 share index performed consistently well.
Almost 83,800 customers invested a total of 797.4 million pounds in the product, with YBS the distributor responsible for approximately 75 percent of the total amount invested.
The FCA said the probability of achieving only the minimum return was 40-50 percent, and the probability of achieving the maximum return was close to zero percent.
"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," McDermott said.
Both firms have agreed to contact customers who bought the product between November 2009 and June 2012 to offer the chance of exiting it without penalty and, where applicable, receive an interest payment. Credit Suisse and YBS generated 19 million pounds and 18.5 million pounds in revenue, respectively.
Credit Suisse said it accepted the FCA's findings and took the matter very seriously, along with agreeing a comprehensive redress process. YBS said it fully accepted the FCA's decision and apologised to its customers, adding that on this occasion it fell short of its own high standards.
Regulators are becoming increasingly worried about the impact of fines on banks for misconduct generally, but the Swiss bank said it did not expect the compensation bill to be material. YBS said its contribution would not affect the mutual's financial strength.
After concerns were raised by Britain's consumer group Which? and others in September 2010, Yorkshire Building Society changed its promotional literature but continued to give an unfair impression of the likelihood of achieving maximum returns, the FCA said.
Credit Suisse also reviewed its literature but decided not to change the brochure significantly.
Both firms obtained a 30 percent discount on their fines after agreeing to settle with the FCA at an early stage.
($1 = 0.5956 British pounds)
(Editing by Chris Vellacott/Louise Heavens/Susan Fenton)