Wealth Manager - the site for professional investment managers

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.

FSA fine may be ‘only the beginning’ for Coutts

9 Comments
FSA fine may be ‘only the beginning’ for Coutts

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.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Brewin's Gutteridge & Foster talk property with Standard Life's Baggaley

Brewin's Gutteridge & Foster talk property with Standard Life's Baggaley

Gutteridge and Foster discuss UK commercial property with Jason Baggaley, manager of the Standard Life Property Income investment trust

Brewin's Gutteridge asks Odey's Tim Bond two tough questions

Brewin's Gutteridge asks Odey's Tim Bond two tough questions

Gutteridge puts the heat on Odey's asset allocation maestro with a couple of tough questions.

Brewin's Foster & Gutteridge: searching for the yield of dreams

Brewin's Foster & Gutteridge: searching for the yield of dreams

Guy Foster and Ben Gutteridge discuss the latest upbeat US payroll report and how it has increased the probability of a first hike in interest rates in June.

Your Business: Cover Star Club

Profile: Creechurch Capital’s CEO on going the extra mile in a crowded market

Profile: Creechurch Capital’s CEO on going the extra mile in a crowded market

Growing a business is the main aim of many company owners but managing that growth in a controlled way is just as important

Wealth Manager on Twitter