Private client bank Coutts is to compensate investors who suffered due to failures in the advice it provided on the AIG Enhanced Life fund, and has agreed to a past business review of its sale of the fund.
The Financial Services Authority (FSA) said Coutts would compensate 'all customers who have suffered loss as a result of any failings on its part' after announcing the review, to be overseen by an independent third party, and confirming a £6.3 million fine.
The regulator said the fine related to Coutts' sale of the Enhanced fund between December 2003 and September 2008, when it invested £1.45 billion of client money into the fund.
It outlined a number of failings in the way Coutts sold the fund including:
- informing clients the Enhanced fund was a cash fund despite a significant proportion of the funds' assets not meeting this description
- providing inadequate training to advisers about the risks and features of the fund
- recommending the fund to some clients even though it may have exposed them to more capital risk than they were willing to accept
- advising many clients to invest a large proportion of their assets into the fund and risking a lack of diversification
- failing to respond to declining market conditions in 2007 and 2008
- failing to review sales after the fund was suspended and customers complained.
Tracey McDermott, FSA acting director of enforcement and financial crime, said: 'Firms giving investment advice must ensure they make suitable recommendations. It is imperative that firms also ensure that clients understand the nature of the product they are buying and the risks it involves.'
The fine follows years of complaints from investors and a long-running investigation of the bank by the regulator, disclosed by parent Royal Bank of Scotland in 2010.
Nectar card scheme founder Keith Mills has led investors' campaign against the bank, after he was advised to invest £65 million into the funds, complaining they were not adequately informed of the risks. Mills has launched pending legal action against Coutts.
The £5.7 billion Enhanced fund was suspended after a wave of redemption requests following the bailout of insurer AIG in September 2008, in the midst of the financial meltdown, before closing.