The firm has agreed to pay a fine of £6.3m, specifically in relation to sales of AIG Life’s Enhanced Variable Rate Fund, a single premium life assurance bond, between 3 December, 2003, and 15 September, 2008.
The fine relates to the sale of this product to just over 400 individuals who have a combined wealth of £1.45bn.
The firm was quick to point the FSA “has not made any findings on the suitability of the advice given in any individual cases” though Coutts has also agreed to a review of the sales of the product that will be undertaken by an independent third party.
Investors sold AIG Life Premier Bonds have been complaining for years that they were not properly informed of the risks associated with the products, having seen their assets frozen after the insurance giant got into trouble in the aftermath of Lehman Brothers’ collapse.
Sir Keith Mills, founder of the Nectar loyalty card scheme, was among those to lose access to savings (of approximately £65m) and has led the action for redress against Coutts.
The fund invested in financial and money market instruments but, according to the FSA, “unlike a standard money market fund, it sought to deliver an enhanced return by investing a material proportion of the fund’s assets in asset-backed securities and floating-rate notes”.
When Lehman Brothers went bust, a number of investors in the fund looked to get their money back but could not do so as the fund was suspended.
Coutts failings
Among a number of serious failings identified by the FSA, it found Coutts:
- described the proposition as a cash fund investing in money market instruments misleading customers as to its true level of risk;
- inadequately trained its advisers about the risks and features of the fund;
- did not describe the fund accurately in its sales literature;
- failed to carry out an effective compliance review of its sales of the fund after it has been suspended;
Tracey McDermott, acting director of enforcement and financial crime, said: “It is also disappointing that Coutts failed to reflect properly upon the impact of changing market conditions and what that meant for the advice they had given, and were giving, to their customers.”
Coutts agreed to settle early thus earning a 30% discount on its fine that brought it down from £9m.
The FSA penalty comes just a week after Coutts’ international arm rebranded itself, dropping the RBS in its name.
It also follows a concerted effort by Coutts to attract more customers to its investment banking services after it found only one in ten of them used that aspect of its proposition.
