MPs threaten to take charge of split-cap debacle from FSA

The Treasury Select Committee threatened yesterday to take the split-capital investment trust débâcle into its own hands if the Financial Services Authority is unable to agree a settlement with the 21 firms involved by the autumn.

The Treasury Select Committee threatened yesterday to take the split-capital investment trust débâcle into its own hands if the Financial Services Authority is unable to agree a settlement with the 21 firms involved by the autumn.

The MPs criticised the FSA's handling of compensation demands for the split-cap scandal, which saw investors lose an estimated £700m after the sector collapsed in 2001. One MP, Michael Fallon, dismissed the regulator's negotiations as "protracted arm-twisting". The comments were made as the committee took oral evidence from Callum McCarthy, the FSA chairman, and John Tiner, its chief executive, as part of an inquiry into the long-term savings industry.

John McFall, the committee chairman, said that if the regulator was unable to get the firms involved in offering split-capital investment trusts to the public to agree to a compensation package by the time Parliament returns from its summer recess, the committee would call up the main protagonists and attempt to resolve the situation itself.

Mr Tiner said that three of the 21 firms had already agreed to enter the FSA's mediation process, with the vast majority still holding talks to try to find a settlement. "There are discussions, which could be constructive," Mr Tiner said.

However, sources close to the negotiations said that while the three companies in question - LeggMason Investors, Gartmore and Govett - had agreed to some of the FSA's terms, not a single company had yet agreed to the FSA's original mediation terms. The source said the majority of the 21 firms have resumed discussions with the FSA. However, they added that it was still unclear whether a settlement would be made. Mr Tiner has now set a new deadline of 2 July for the firms to agree to its terms or face the Regulatory Decisions Committee.

When questioned on whether any settlement would involve an admission of guilt, Mr Tiner suggested the firms would not have to accept culpability, as it was clear this could open the floodgates to legal action from investors in the split-cap funds.

However, several sources close to the negotiations said the FSA had until now repeatedly insisted that any deal would have to include an admission of guilt.

Mr Tiner said that as well as the 21 firms, there are 30 individuals involved in the sector who are under investigation. He said the FSA would not be willing to forgo its right to pursue the individuals as part of any settlement with the firms.

Mr McFall was equally critical of the providers and brokers involved. He added that the £350m compensation the FSA is demandingdid not seem unreasonable. "There are some big players here," he said. "When we talk about £350m, this doesn't seem very much to get this problem out of the way."

Mr McCarthy said there would be full disclosure if a settlement was made. "It will be a public deal which we will justify, or not conclude," he said.

Mr Tiner added that while discussions were ongoing, the FSA would not be prepared to "go for a settlement at any level". Recent reports have suggested that a consortium of the firms involved have upped their offer of compensation to about £200m. However, the FSA is believed to still want considerably more.