British regulators have fined AXA Wealth Services Ltd. £1.8 million and ordered redress for widespread suitability failings in the sale of investment products to unsophisticated clients.

The UK’s Financial Conduct Authority (FCA) announced that it has fined AXA, the wealth management division of insurance giant AXA in the UK, £1,802,200 for failing to ensure it gave suitable investment advice to its customers. In addition to the fine, the firm has agreed to contact all customers who may be affected by its failings and to compensate any customers who suffered losses as a result. A third party will oversee this exercise.

The regulator suggests that customer losses may be low due to rises in the stock market since the unsuitable advice was given. Nevertheless, it’s acting preemptively to ensure customers have a chance to avoid potential future losses if the market turns against them.

The advice failings uncovered by the FCA include failing to: confirm how much risk its customers were prepared to take; ensure that customers could manage financially if their investment fell; explain the impact of investment costs on returns; properly explain suitability; gather adequate know-your-client (KYC) information. The FCA says it also found that AXA failed to have effective controls over the bonuses it paid to advisors, which created “an unacceptable risk” of inappropriate investment recommendations designed to qualify for bonus payments.

“The failings put a significant number of customers at risk of buying unsuitable products,” it says, noting that between September 2010 and April 2012 AXA sold approximately 37,000 investment products to 26,000 retail customers who tended to have low levels of experience and were typically in, or nearing, retirement. In total they invested £440 million with AXA.

“AXA fell short of its responsibilities to its customers, many of whom were elderly, retired and financially inexperienced. Its failures resulted in an unacceptable risk of AXA selling products, which were unsuitable for its customers. AXA’s failures were avoidable, coming despite repeated warnings from the FCA’s predecessor to the industry about investment advice,” said
Tracey McDermott, the FCA’s director of enforcement and financial crime.

“The FCA will continue to take tough action against firms who fail to comply with their responsibilities to ensure that consumers get a fair deal.”