Standard Life has been fined £2.45 million after having produced misleading marketing material for its Pension Sterling Fund.

The Financial Services Authority (FSA) found that the insurance giant had serious systems and controls failings between 10 July 2006 and 28 February 2009 that led to the problem with the fund's literature. The failures, the FSA said, resulted in a risk of unexpected capital losses for approximately 98,000 customers who had invested in the fund, which was intended primarily for pension investment. Investors had been led to believe that the fund was wholly invested in cash.

The fund lost 4.8 per cent (around £100million) on 14 January 2009, and in February 2009, Standard Life paid £102.7million into the fund to restore the value of investors' holdings to the position they would have been in prior to the fall in unit price.

The firm has also contacted existing customers identified as having received poorer quality marketing material, to determine whether they require further compensation. A report by an independent third party was also commissioned by Standard Life into the systems and controls.

"The FSA takes the issue of misleading financial promotions very seriously and the fine announced today demonstrates our commitment to the principle of credible deterrence," commented Margaret Cole, FSA director of enforcement and financial crime. "It is critical that consumers are given an accurate understanding of the nature of investment products and the risks involved. Without this information, consumers are unable to make informed decisions about whether investments are suitable for their individual investment strategy."

Standard Life, which fully cooperated with FSA and settled at an early stage of the investigation, qualified for a 30 per cent penalty reduction, which could have been £3.5million.

Standard Life said it had learned important lessons from its mistake and has improved its marketing literature processes to avoid this occurring again. "When our own internal review identified problems with some of our literature in February last year, we immediately apologised to customers and injected over £100million into the fund to compensate them for their losses from the sudden fall in unit price. Since then, we have conducted a full and thorough review of existing literature and put in place a new improved process for new literature. We have worked closely with the FSA throughout and co-operated fully with their investigation."

Mathew Rutter, financial services partner at law firm Beachcroft LLP, said the case was a perfect example of the FSA's reaction to claims that it has been too soft in the past on the firms it regulates.

"The fine emphasises the need for firms to make sure that they explain their products and services very clearly and accurately to customers. However, an added issue here was that concerns which were raised both internally and by customers were not properly addressed. Even when the literature was changed, existing customers who might have been misled were not told," said Rutter.

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