Business

Private bank Coutts fined £6.3m by the FSA

Cash
Image caption The bank says it will compensate all those who have been affected

Private bank Coutts has been fined £6.3m by City watchdog the FSA for the way it sold investments to clients.

The fine surrounds the sale of bonds issued by US insurance company AIG and described as low-risk to 427 well-off customers, who invested £1.45bn.

However, the investments were caught up in the uncertainty of the financial crisis when AIG had to be bailed out.

Coutts, which is part of RBS, became a household name as the bank to the rich and famous, including the Queen.

It said it would compensate anyone who suffered losses as a result of the failures identified by the regulator. Some 247 Coutts customers had £748m invested in the fund when it was frozen. They either lost some of their money or did not earn a return.

Complaints

The AIG Enhanced Variable Rate Fund was sold to investors between December 2003 and September 2008.

Then investors saw their money frozen after AIG was bailed out by the US government during the financial crisis.

They were told that a significant proportion of their money would be inaccessible for several years.

Some clients, including the millionaire founder of the Nectar loyalty card and Air Miles inventor Sir Keith Mills, claimed they had been mis-sold the bonds.

Now the Financial Services Authority (FSA) has highlighted a string of failures by Coutts including:

  • Telling customers that the fund could be seen as an alternative to a bank or building society account
  • Failing to train advisers properly about the risks and features of the fund
  • Recommending the fund to customers who did not want to be exposed to such a risk, or advising them to invest a large chunk of their assets in the fund
  • Not responding appropriately to the changing market conditions of late 2007 and 2008.

"Firms giving investment advice must ensure they make suitable recommendations," said Tracey McDermott, acting director of enforcement and financial crime at the FSA.

"It is imperative that firms also ensure that clients understand the nature of the product they are buying and the risks it involves. We will continue to take action where we find evidence that firms are giving unsuitable advice to customers.

"It is also disappointing that Coutts failed to reflect properly upon the impact of changing market conditions and what that meant for the advice they had given, and were giving, to their customers."

The fine, one of the largest of its kind handed out by the regulator, was reduced from £9m owing to the bank agreeing to the penalty at an early stage.

"We always strive to provide the highest level of investment advice to our clients and have therefore been disappointed that we did not meet our high standards of service in respect of this product," said Rory Tapner, chief executive of Coutts.

"We had already implemented enhancements to our investment advice procedures, which provide reassurance that the past failings identified by the FSA will not be repeated."

The action comes two weeks after the UK arm of Credit Suisse was fined £5.95m for failings over advice to customers when selling complex financial products from January 2007 to December 2009.

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