FSA reaches deal with split firms

In return for their contribution, the regulator will not apportion blame for the affair to any of the 18 firms.

Those firms that have agreed to the package will establish funds of £194m to compensate investors who lost their capital in zero-dividend preference shares.

This figure includes a fund of £143m to be distributed by Funds Distribution to investors who purchased certain types of zeros.

The remainder of the £194m is made of up of Aberdeen Asset Management’s £43m Capital Uplift plan and £8m already paid to investors by all the firms involved. First announced in June 2002, Aberdeen’s plan will be available to investors who purchased units in its Progressive Growth unit trust – a fund of zeros – between its launch in August 2000 and June 28, 2002.

Taking into account its own compensation pool and a payment of £35m into the central FSA fund, Aberdeen is the single biggest contributor to the compensation package. Seen as one of the principal protagonists in the creation of splits, and their subsequent demise in 2001/02, its two payments equate to some 38% of the entire pot of money.

As a result, in its final results for the year 2004, Aberdeen says the estimated £74m cost of its settlement has contributed largely to a pre-tax loss of some £87.6m. This loss compares with a deficit of £6.4m for 2003. In addition to the financial penalty, Aberdeen’s former head of investment trusts Chris Fishwick has agreed not to participate in any FSA-regulated activities for the next seven years.

Other firms to accept the deal include Collins Stewart, Edinburgh, Framlington, Morley and New Star. Each has negotiated to pay differing amounts into the £143m.

Daniel Godfrey (pictured), director general of the Association of Investment Trust Companies, said in reaction to the settlement: “It is the end of a chapter, but not the end of the story. The FSA has put the consumer first in doing the deal and should be applauded for that.

“As a result, zero holders will receive a fairly decent chunk of their money back, although not everything. There are still issues to resolve regarding those companies not involved in the deal, but a significant number of investors can now begin the process of claiming.”

To be eligible to make a claim from the fund, investors must have purchased their zeros between July 2000 and June 2002. Further details will be published later this quarter, and it is expected that the first payments will be made in the fourth quarter this year.

Q&A, page 12