Standard Life fined £2.45m over fund

The penalty imposed by the Financial Services Authority – its first significant fine of 2010 – came after the regulator found "serious systems and controls failings" that led to misleading marketing material for the Standard Life Pension Sterling Fund.

The fund, which at one stage had 2.2bn in assets under management and 98,000 customers, was launched in 1996 and marketed to customers approaching retirement as a low-risk investment that was wholly invested in cash.

But by July 2007, the majority of funds under management were invested in mortgage-backed securities, which were the risky investments at the heart of the credit crunch and financial crisis. The credit squeeze saw the bottom fall out of the mortgage-backed security market and the fund was found last January to have suffered losses of around 100m.

The group's subsidiary Standard Life Assurance compensated 102.7m into the fund and alerted the Financial Services Authority to the issue - a move that saw its fine reduced from a potential 3.5m.

But the regulator said customers were exposed to a "risk of unexpected capital losses" after Standard Life Assurance failed to communicate how the fund's investment strategy had changed in marketing material to new and existing customers.

It had also not acted soon enough on concerns raised over the fund's marketing.

Margaret Cole, the authority's director of enforcement and financial crime, said: "The failures at Standard Life Assurance arose because there were inadequate systems or controls in place to ensure that marketing material issued accurately reflected the investment strategy for the fund.

"There were also inadequate processes in place to enable effective communication between business areas and committees resulting in a lack of awareness of any divergence between the marketing material and investments held by the fund."

Standard Life has contacted customers to find if further individual compensation is needed.

A spokesman said: "We have learned important lessons from this mistake and have made significant improvements to our marketing literature processes to prevent the same thing happening again."