Watchdog fines bond mis-seller

A FIRM, formerly owned by Royal & SunAlliance, has been fined £300,000 for mis-selling investment bonds.

The Financial Services Authority said Capita Trust, formerly known as the Royal & SunAlliance Trust, had co-operated with the investigation and would 'voluntarily' pay compensation of £3.5m to the 500 customers mis-sold precipice bonds between June 1997 and September 2002.

Customers will not have to prove mis-selling as the FSA found evidence of wrong-doing in all 60 cases it investigated.

The losses ranged from 9% to 100% depending on the particular bond, but most investors saw their money shrink by around 50%.

A number of firms including Lloyds TSB, which owns insurer Scottish Widows, have been disciplined over bonds which had few safeguards. They are high-risk stock market investments, dubbed 'precipice bonds' because their value could drop dramatically if share prices dived.

Capita was warned in August 2001, three months after it bought the firm, of 'serious deficiencies' in its sales process but failed to check whether wrong advice had been given – and failed to implement changes suggested by its consultants.

'It is essential that higher risk products be promoted with great care, and the risks must be clearly and unambiguously explained to customers,' said Andrew Procter, FSA director of enforcement. 'Over a sustained period this firm failed to provide customers with suitable advice. Such a very high failure rate over such a prolonged period would normally merit a significantly higher financial penalty.

'However, in acknowledging its responsibilities to its customers, the firm has ensured that none of the investors will lose out as a result of the firm's historic compliance failings and has co-operated fully throughout the investigation.'

The watchdog praised Capita for acting so quickly 'in marked contrast' to other firms that have put themselves into liquidation, avoiding their liabilities and leaving investors to rely on the Financial Services Compensation Scheme for redress. Some financial advisers have done this and gone back into business under a different name.

High-profile financial adviser David M Aaron was recently banned from the profession by the regulator after it was found to have mis-sold bonds to 8,000 people.

However, Financial Mail and This Is Money last month revealed that Stephen and Michael Aaron, 33, sons of the eponymous founder, had set up a financial services marketing and technical consultancy, called Palladium Solutions, in Milton Keynes, Buckinghamshire. The firm had hoped to publish 'independent' financial guides.

RSA was also hit last year with a £950,000 fine for mis-selling endowment mortgages. The FSA accused it of 'serious failings'.

A spokesman for RSA said the company 'acknowledged its failings' and had worked with Captia to 'resolve the situation'. He added: 'This doesn't reflect our current business.' RSA has sold all its investment and life businesses in recent years to focus on general insurance.

Outsourcing business Capita Group said: 'Capita Trust Company and Royal & SunAlliance have worked together to ensure all customers who have suffered a loss will receive compensation. The process of compensating customers has already begun since July 2004 before the FSA announcement.'

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