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December 22, 2004

FSA gets tough week

The Financial Services Authority (FSA) has been getting tough this week.

In the first action, building society Bradford and Bingley was fined ��650,000 and ordered to compensate existing investors by ��6 million, for mis-selling precipice bonds and with-profits investments to 6,800 investors.

Precipice bonds are high risk investments - often linked to an index, such as the FTSE-100 - that can offer high returns when successful, but create significant losses where the market downturns. FSA accused the B&B of not warning investors properly of this risk.

According to reports: ��650,000 mis-selling fine for B&B

Bradford & Bingley did not make suitable recommendations to customers and failed to keep proper records of sales made, the FSA ruled.
The FSA added the offence had been compounded because the bank had ignored warnings about the quality of its record keeping dating back to 1998.

As a result the bank had exposed customers to a higher degree of risk than was suitable through its sale of with-profits and precipice bond investments, the watchdog added.

"This is a very serious case of mis-selling which was made worse by the fact that Bradford & Bingley had prior warning of the specific concerns about its record keeping," Andrew Proctor, head of enforcement at the FSA, said.

"However, the firm failed to pay sufficient attention to these warnings and take adequate action, which put thousands of its customers at risk of financial loss. "

Also targeted this week was insurance giant Axa Sun Life, who was fined ��500,000 for advertising of its Axa Cash Builder Plus. A with-profits endowment policy, that has seen a string of TV ads fronted by June Whitfield and Carol Smilie, was held to have been improperly represented, with potential investors not warned clearly enough of financial penalties imposed should be plan be cashed before maturity.

Last year Lloyds was ordered to pay ��98 million to its investors, also for the mis-selling of precipice bonds. and in September, finance advisors firm, David M Aarron Ltd, was banned from trading after it mis-sold precipice bonds to 8,000 investors.

Addendum: 24th December 2004

The FSA today announced a ��194 million compensation package for investors caught up in the split-capital investment trust scandal of 2000.

Eighteen investment firms involved in the sale of the investments agreed the compensation package with the Financial Services Authority.

Posted by brian_turner at December 22, 2004 02:37 PM

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