Split apart
Mark Beswetherick, Bristol, reports on how the mis-selling of split capital investment trusts ("splits") has again hit the headlines recently.
The Financial Services Authority (FSA) claims it has uncovered damning evidence of collusion between 21 leading product providers and sponsoring brokers of “splits”. Since March the FSA has been attempting to negotiate a settlement to provide a compensation package, thought to be in the region of £320m, for private investors who lost money following the collapse of many splits.
Failing such a deal, the FSA has threatened the 21 involved with enforcement action and the prospect of substantial fines in addition to compensation payouts. However, many of the 21 have indicated that they believe the FSA's evidence is unconvincing and it is unclear whether a deal will be struck. It is inconceivable that insurers are likely to agree to a payout, unless they are convinced that they face a legal liability for those losses.
Compensation deal
One issue that remains unresolved is how any compensation deal would impact on the many thousands of splits and zero dividend preference share claims currently awaiting determination before the Financial Ombudsman Service or, indeed, the splits group action threatened by Class Law solicitors. The FSA and FOS have, to date, been pursuing their own separate agendas in dealing with splits claims. There remains a significant risk of an embarrassing contradiction between the FSA's stance of blaming the product providers and sponsoring brokers and the FOS's decisions on splits cases, many of which are going against intermediaries and IFAs.
The FSA has also recently fined a large IFA, Hargreaves Lansdown, £300,000 for record keeping and compliance failures relating to two splits which it recommended to execution-only clients. This, however, appears to be the exception to the general rule, as the FSA has announced that it does not intend to pursue IFAs whom it believes were in the dark about the collusion by the 21 providers and brokers.
Clearly the splits miss-selling saga will continue for a long while yet.