FSA managing director John Tiner has warned the annual AITC conference of directors that he has "run...
FSA managing director John Tiner has warned the annual AITC conference of directors that he has "run out of fingers" needed to count the number of split capital investment trust companies being investigated for having conned investors.
This is at least a doubling of the number indicated when Tiner together with FSA chairman Howard Davies gave evidence before the Treasury Select Committee in November last year on the splits issue.
Tiner would not give a precise number of firms, but says the regulator has been uncovering a "spider's web" of collusion between split capital managers - the so-called "magic circle" of splits that invested in each other.
"The investment trust industry has lost the confidence of those it is supposed to serve," he says.
What started small has grown to become the FSA's biggest ongoing inquiry, Tiner says, and now includes both investment managers and stockbrokers.
Splits have become a by-word for a "con" among ordinary consumers, most of whom would not have ever heard of the product type this time last year, he adds.
Tiner says the regulator's investigations are focusing on charges of collusion and false marketing.
He warns the investment trust industry not to keep blaming the global equity bear market for all the problems faced by the sector, and not to keep putting off reforms of governance laws.
FSA inquiries into the splits problems so far have found managers blaming the markets, and IFAs blaming marketing material supplied by the trust companies, which promised low-risk investments "when sometimes they were clearly anything but".
More than 2,000 complaints have landed on the Financial Services Ombudsman's desk already, and there are still upwards of 200 new complaints coming in every week.
With that in mind, Tiner has urged investment trust companies to try to settle cases if possible without having to wait for an FSO ruling as delay is unlikely to help "repair the sector's tarnished image".
The AITC has proposed new governance rules that would change the balance of power between managers and boards of investment trust companies.
Tiner says whatever proposals end up becoming reality, they must pass the test of being in shareholders' best interests, otherwise the FSA will look to impose its own set of rules.
Tiner says the AITC's proposals to allow directors to serve on boards of different trust companies is likely to be opposed by the FSA, which believes directors' independence can only be guaranteed if they serve on a single board.
He also says the issue of limits on assets invested in other funds may have to be considered – cross-holdings were a major cause of the destruction of shareholder value in splits.
The FSA may also require more explanation of investment risk be included in any prospectuses for investment trust companies, and that such explanations be written in plainer English.
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation