FSA gives split-cap firms 48 hours to agree to £350m compensation

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The Independent Online

John Tiner, the chief executive of the Financial Services Authority, has hit back at firms involved in the split-capital investment trust débâcle, demanding that they agree to a collective compensation package of £350m by today.

John Tiner, the chief executive of the Financial Services Authority, has hit back at firms involved in the split-capital investment trust débâcle, demanding that they agree to a collective compensation package of £350m by today.

In discussions on Monday with Terry Smith, the chief executive of Collins Stewart Tullett, Mr Tiner rejected an offer of about £120m proposed by a group of the 21 firms involved in the sector, warning that if it failed to agree to the £350m within 48 hours, he would proceed immediately to enforcement against each of them.

The FSA is believed to have originally wanted more than £400m - in compensation and penalties - and had not been prepared to settle for much less. However, representatives of the 21 firms have expressed concerns that most of the main protagonists in the sector do not have the resources to deliver the kind of sums the FSA is demanding.

BFS Investments and Exeter Fund Managers - two of the sector's main players - have very few resources which they would be able to contribute to the fund, while the larger companies, such as HSBC and ABN Amro, had much less involvement with the industry.

Last month, Terry Smith took control of the negotiations on behalf of most of the 21 firms, calling each of them individually to ask how much they would be prepared to pay towards the compensation fund.

His final proposal of about £120m came with the condition that the FSA would close all peripheral split-cap investigations once the money was paid, and would apportion no blame to any of the companies involved. The group was careful to point out that its offer was not an admission of guilt but was simply driven by its desire to avoid a lengthy and costly legal battle in the courts or tribunals.

So far, Mr Tiner has been uncompromising on the issue of blame, remaining keen to name and shame both the companies and individuals involved with the case.

The firms are now hoping to stall Mr Tiner, unwilling to pay the £350m, but keen to avoid the now seemingly inevitable move to enforcement. Assuming each of the companies appealed against Mr Tiner's decisions, the FSA would have to face each of the firms in the Financial Services & Markets Tribunal, a process which would last several years and would be damaging and costly for both the firms involved as well as the regulator.

The group is now waiting eagerly to see whether Mr Tiner follows up on his threat. Several previous deadlines have already come and gone. However, this week's more aggressive, short-term ultimatum is Mr Tiner's most aggressive move yet.

The news comes just days after John Duffield, the outspoken chairman of New Star Asset Management, threatened to sue the FSA for defamation, for remarks made by Rob McIvor, its senior press officer. In a report in the Mail on Sunday last month, Mr McIvor was reported to have said that the firms involved with split-caps had "ripped off consumers".

Mr Smith subsequently lent his support to Mr Duffield's threat, saying that he was concerned the comments illustrated that the FSA had pre-judged the firms involved. The FSA insists that the comments were taken out of context from a general conversation about compensation.

Mr Tiner's latest move is an attempt to reassert control over the split-cap negotiations after they seemingly spiralled out of control in recent weeks.

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