The FSA has quashed suggestions that it was aware of escalating problems with split-capital investme...
The FSA has quashed suggestions that it was aware of escalating problems with split-capital investments as long ago as March 2001 but did not take enough action to counteract it. Claims that the FSA has been trying to hide their insufficient action, by falling back on a regulatory update note released 20 months ago warning of the dangers of split caps, have been quashed by FSA spokesman Rob McIvor as "nonsense".
The PIA update note, titled 'Income shares of split capital investment trusts', was sent to IFAs in March 2001 highlighting the risk that income shares could suffer capital losses:
"PIA is concerned that the risks of capital loss are not adequately disclosed in marketing literature for income shares. PIA is particularly concerned as the risk of capital loss, and full capital loss, may be greater than for many alternative income-generating investments."
The guidance note however does not make any specific reference to zero dividend preference shares which, although were routinely marketed as low-risk, ended up causing the industry more problems.
Press reports and comments by Stephen Alexander, partner at Class Law, suggest the FSA believes the regulatory note should have served as a general warning about all types of shares in split caps and not just income shares, which has resulted in claims by some IFAs that the watchdog is "moving the goalposts" to leave them exposed to fines and compensation orders.
McIvor refutes the suggestion that the FSA is changing the rules of the game. He says, "I'm puzzled as to why this note has suddenly resurfaced, it has been in the public domain since March 2001 and there was a lot of publicity surrounding the note when it was released, but I'm not sure why it has surfaced again. Perhaps it's been in response to IFAs complaining".
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