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FSA fine may be ‘only the beginning’ for Coutts
by Emma Dunkley on Nov 11, 2011 at 07:00
Coutts may face greater financial liabilities following a £6.3 million FSA fine imposed on it this week for failings in the sale of an AIG fund.
A source close to the situation said the fine could well be ‘only the beginning’ and the firm could face significant compensation claims potentially in the tens of millions.
Coutts sold the AIG Enhanced Variable Rate fund to 427 high net worth clients, including Sir Keith Mills, between 3 December 2003 and 15 September 2008, according to the FSA, with investments amounting to £1.45 billion.
A run on the fund during the financial collapse of late 2008 led to it being suspended with remaining investors locked in.
When the fund was suspended on 15 September Coutts said the 247 clients who were still invested in the fund could withdraw 50% of their capital and have the remaining 50% transferred into a new AIG Protected Recovery fund.
The source said in theory if investors were not paid interest on the 50% that went into the recovery fund, and if Coutts has to compensate clients for this potential loss of interest, over two years, it could have to potentially pay out over £40 million.
This calculation is based on half of the total £1.45 billion invested, multiplied by 3%, representing the typical savings rate clients would have otherwise achieved per year in another account, which is multiplied by two to represent the two years.
However, Coutts said until it completes its review of all the accounts that remained invested in the fund as of 15 September 2008, no assumptions should be made about any reimbursements to clients. It added that some distributions from the fund had been paid out.
The FSA issued the fine for failings in connection with the sale of the AIG Enhanced Variable Rate fund. These included informing customers it was a cash fund investing in money market instruments that could be seen as an alternative to a bank or building society account.
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