FSA demands split cap deal

THE Financial Services Authority has today told institutions embroiled in the split-cap selling fiasco to come up with a collective negotiated settlement with 50,000 private savers who lost around £650m.

At a meeting at the FSA's offices in Canary Wharf, London, executives from the 21 financial institutions concerned were told they should pay compensation to investors where appropriate and take disciplinary action where necessary.

The funds have until later this month to come up with such a collective agreement and, according to FSA chief executive John Tiner, court action will result if there is no deal.

The FSA is expected shortly to reveal key findings of its two-year investigation into the industry in an attempt to strong-arm payments from the array of fund managers and private-client brokers who sold and managed split-capital investment trusts.

Failure to agree a deal will lead the FSA to start formal enforcement proceedings against some or all of the fund managers, thought to include Aberdeen, Exeter, BFS, Morley, Gartmore, Framlington and Jupiter, as well as stock brokers Brewin Dolphin and Collins Stewart.

Institutions, however, are likely to fear that agreeing a settlement might spark an onslaught of negligence lawsuits against them from private investors who take any acceptance of a fine as an admission of liability.

The institutions have been accused of designing, promoting and selling splits as low-risk saving schemes.

Thousands of investors lost millions of pounds when shares in splits fell sharply after heavy borrowings and cross-shareholdings turned sour in 2002, causing a domino-like effect on the splits sector.