Ethics

Split cap probe ends without prosecution

The Financial Services Authority (FSA) has concluded its investigation into the split capital investment trusts scandal without bringing charges.

However, a number of industry figures have agreed to accept punishments that stop short of disciplinary action. These include David Bruce, who will resign as chief executive of BC Asset Management and has agreed not to perform any “significant influence functions” until 3 April 2009.

Between 1998 and 2001, split capital trusts were widely marketed as safe investments. However, many funds took on heavy leverage and bought shares in other funds, with the result that when the markets fell significant sums were lost by thousands of private investors.

The editorial in the Financial Times (23 May) said it is disappointing that five years after opening the investigation, and despite stating it had found evidence of serious wrongdoing, the FSA has merely agreed that a few individuals will not carry out certain functions for a few years.

The FT suggested that, although the regulator has secured some compensation for investors and limited cross-shareholdings between funds, little has been done to deter future reckless behaviour.

June 2007