Split-cap companies face action as FSA calls time on mediation talks

Crackdown: Regulator's patience runs out as deadline expires on £350m compensation
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The Independent Online

The Financial Services Authority said yesterday it was terminating discussions with all but a handful of companies involved in the split-capital investment trust debacle, and would begin referring cases to its Regulatory Decisions Committee to begin enforcement proceedings.

The Financial Services Authority said yesterday it was terminating discussions with all but a handful of companies involved in the split-capital investment trust debacle, and would begin referring cases to its Regulatory Decisions Committee to begin enforcement proceedings.

The breakdown in communications came after a group of firms refused to agree to a £350m collective compensation package demanded by the FSA's chief executive, John Tiner, on Monday. After weeks of negotiations, Mr Tiner told the group it had 48 hours to agree to the deal or face enforcement.

In a statement yesterday afternoon, the FSA delivered on its sinister promise. It said: "The FSA believes that payment of £350m as compensation would represent an acceptable amount in the context of these discussions. The amount that those firms have indicated that they would be prepared to make available is so far short of what is necessary that the FSA does not intend to continue with these discussions."

The FSA said it would continue to hold discussions with a handful of the 21 firms involved that had agreed to join the FSA's mediation process. These are believed to include Legg Mason.

The remaining group, which has been headed by Terry Smith, the chief executive of Collins Stewart Tullett, has so far refused to join the mediation process. Its final offer of compensation of about £120m was some £230m less than the regulator is looking for. The large banks involved - ABN Amro, HSBC and UBS Warburg - are not believed to be part of Terry Smith's negotiations, but are also thought to have rejected the offer of mediation.

The FSA said enforcement proceedings would begin at the Regulatory Decisions Committee, the regulator's independent enforcement body, next month. Firms who appeal against its decisions will have their cases referred to the Financial Services & Markets Tribunal, where the first cases are not likely to get under way before the end of the year. One final olive branch was offered to firms yesterday, as the regulator said it would allow firms back into the mediation process up until enforcement proceedings begin. "It remains willing to involve these firms in the mediation process should they agree to take part on the basis proposed by the FSA," it said. Few, if any, are expected to take up the offer.

One chief executive said the proceedings were likely to take years to reach their conclusion. "The FSA says it has listened to 27,000 telephone conversations, so presumably we will all have to go and listen to those 27,000 conversations now as well. That should keep us occupied for a while for a start," he said.

While the firms remain reluctant to face enforcement, none is willing to accept the FSA's condition that they admit blame. The companies' lawyers have warned that such a move would open the flood gates to litigation by investors. The FSA reiterated yesterday that its announcement would not affect its investigations into individuals involved in the split-cap sector. It said decisions as to whether to enforce against individuals would be taken separately, and would not be dependent on the outcome of any negotiations with firms.

Most firms are believed to have signed confidentiality agreements in order to view the FSA's evidence against them, but remain unimpressed. One chief executive said that many of the FSA's accusations of collusion relate to a series of discussions among managers organised to try to stem the problems in the market once they became apparent in 2001.

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