Whitechurch to clash with City watchdog over 'precipice' bonds

Whitechurch Securities, one of the UK's leading firms of independent financial advisers, became the latest company to stand up to the City watchdog yesterday, lining up a tribunal clash with the regulator after it was ordered to offer compensation to more than 1,000 of its clients.

Whitechurch Securities, one of the UK's leading firms of independent financial advisers, became the latest company to stand up to the City watchdog yesterday, lining up a tribunal clash with the regulator after it was ordered to offer compensation to more than 1,000 of its clients.

The Financial Services Authority alleges Whitechurch mis-sold so-called "precipice" bonds to its clients about five years ago, advertising them as low-risk when in fact they put a large amount of investors' capital in danger.

After markets fell between 2000 and 2003, many precipice bonds collapsed, wiping out the majority of many investors' capital.

Clients of Whitechurch, run by Kean Seager, one of the UK's highest-profile financial advisers, are believed to have collectively lost more than £3m in the bonds. When the extent of the losses became clear last year, Mr Seager put his subsidiary company, Whitechurch Investment Services (WIS), into administration - a move which was criticised as an attempt to ensure any successful compensation claims were picked up by the Financial Services Compensation Scheme.

Although this is a legitimate move, the FSCS has yet to declare WIS in default, suggesting the group may be holding sufficient assets to pay any compensation claims. Meanwhile, the FSA has persisted with its demands that Mr Seager writes to the 1,000-plus clients who were affected, offering the chance to claim compensation. If all 1,000 complained, it is thought that the parent company could also become insolvent.

Mr Seager did not return The Independent's calls yesterday. However, last year, he was quoted in a specialist newspaper, criticising the FSA's approach to dealing with the precipice bond débâcle. "It has taken a sledgehammer approach to break tough nuts," he said. "But I think they need simplification and to back off a bit."

Last year, the FSA banned the main partners at the David Aaron Partnership, another prominent IFA, from working again in the financial services industry, for their role in the precipice bond mis-selling scandal. Andrew Procter, the FSA's director of enforcement at the time, described the case as one of the most serious examples of mis-selling he'd ever seen.

After being put into receivership at the end of 2003, the company was eventually officially declared in default last year, leaving the FSCS to pick up the bill for its compensation claims.