RSA fined £300,000 over precipice bonds

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The Independent Online

Royal & Sunalliance, the UK insurer, found itself on the wrong end of another enforcement decision by the City watchdog yesterday, and has been forced to pay up as much as £2.6m in compensation for the mis-sale of precipe bonds - mostly to former employees.

Royal & Sunalliance, the UK insurer, found itself on the wrong end of another enforcement decision by the City watchdog yesterday, and has been forced to pay up as much as £2.6m in compensation for the mis-sale of precipe bonds - mostly to former employees.

The Financial Services Authority said in a statement yesterday that it was fining the Capita Trust Company, a former subsidiary of RSA, some £300,000 for precipice bond mis-selling between June 1997 and September 2002, and ordering compensation payments of £3.5m. It added that about 75 per cent of the mis-sales were made before May 2001, when the company was sold to Capita, with the remainder made over the following 16 months. Most of the pre-2001 sales were to former employees of RSA and their spouses.

RSA, which is headed up by chief executive Andy Haste, would not disclose how much it would be contributing towards the compensation payouts yesterday, but said that the amount would not be "material" in terms of either UK or group profits.

Capita's fine is the second largest handed down by the FSA for precipice bond mis-selling. Last year, Lloyds TSB was ordered to pay a fine of £1.9m, and compensation of £98m for precipice bond mis-selling, while the financial advisers Chase de Vere were fined £165,000 last December for issuing misleading promotions about the products.

Precipice bonds are products in which customers lose a large proportion of their initial investment if the market, or certain stocks in the portfolio, fall by a certain amount during the term of the investment. The FSA said the products were sold without highlighting the true risks involved.

Andrew Proctor, the FSA's director of enforcement, it was essential that higher risk products were promoted with great care. "However, in acknowledging its responsibilities to its customers, the firm has ensured that none of the investors will lose out as a result of the firm's historic compliance failings and has co-operated fully throughout the investigation."

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