FSA unveils £194m splits deal

THE Financial Services Authority has finally agreed a multi-million pound fund with 22 City firms to compensate victims of the split-capital investment trust misselling scandal.

The £194m package represents a partial victory for the City regulator, which had originally aimed for a fund of £350m. Even that would not have completely compensated everyone who lost out ? some 20,000 lost about £600m in the splits scandal when the trusts collapsed.

Splits were sold from the late 1990s as 'safe' investments, carrying little risk of heavy losses. One offered by Aberdeen Asset Management even described itself as 'the one-year-old who lets you sleep at night'.

Although splits were sold as low-risk products the products collapsed in value after the stock market plummeted in 2000. It later emerged that splits had been investing in each other, creating a so-called 'magic circle'. When one went down, they all did.

Under the terms of today's settlement, concluded after nine months of negotiations with the companies who sold the split-cap trusts, several individual directors have been given separate warnings by the FSA. This includes Christopher Fishwick, previously one of Aberdeen Asset Management's highest-paid directors.

The FSA has also resolved its investigation into the affairs of David Thomas, formerly a consultant with Brewin Dolphin Securities. The FSA has agreed to take no regulatory action against Thomas, who will now retire after agreeing not to reapply for FSA approval to conduct regulated business.

Announcement of the settlement had been expected earlier this week but was held up after a row with Collins Stewart, which objected to ABN Amro insisting on the right to take legal action against other companies in the settlement if it was the subject of subsequent legal action. That row was resolved this morning after intense negotiations at the FSA.

The regulator itself rebutted suggestions that the agreement will not generate enough money for victims of the misselling. It said the agreement was worthwhile because it would bring some certainty for eligible investors. In the event of enforcement proceedings the decision making process could take a number of years and this agreement will ensure that money is quickly available to eligible investors, the FSA added in a statement.

The FSA said it had identified several areas where the financial services industry would have to learn lessons if investors were to renew their confidence in the investment sector and investment trusts in particular.

Firms will have to properly manage conflicts of interests in future and material promoting investment products should fully disclose the specific risks relating to them. They will also be responsible for alerting investors in the market to any subsequent big changes in the risk characteristics of the products over time.

Here is a full list of the firms, fund managers, banks and brokers involved in the deal:

Aberdeen Asset Managers;
Aberdeen Asset Managers Jersey;
Aberdeen Private Wealth Management;
ABN AMRO Equities (UK);
Brewin Dolphin Securities;
Britannic Investment Managers;
Collins Stewart (CI);
Collins Stewart;
Edinburgh Fund Managers;
F&C Asset Management plc (formerly ISIS Asset Management);
Framlington Investment Management;
Gartmore Investment;
Govett Investment Management (now called AIB Investment Management);
HSBC Investment Residuary (formerly HSBC Investment Bank);
Insinger de Beaufort (International);
Jupiter Asset Management;
Legg Mason Investments (Europe);
Le Masurier James & Chinn;
Morley Fund Management;
New Star Asset Management;
Premier Fund Managers;
Royal London Asset Management;
UBS AG (formerly trading as UBS Warburg)