FSA Under Fire Over Split Cap Fiasco

by Carla Johnson, Investors Offshore.com

18 November 2002

A nine-strong, cross-party Treasury Select Committee headed by John McFall last week accused the UK's Financial Services Authority (FSA), and its chairman, Sir Howard Davies of being 'asleep on the job' with regard to the risks posed by split capital investment trusts.

It emerged recently that the FSA had ignored warnings from Guernsey regulator, Peter Moffatt regarding the 'potentially incestuous nature' of the trusts, many of whom invested significant amounts in each other's shares. Despite Mr Moffat's 2001 announcement that: 'we have been stepping up our required risk warnings as a consequence', the FSA conducted an investigation, but found no evidence of systemic risk.

In addition to failing to warn split cap investors - many of whom lost their savings when the 'magic circle' began to collapse - of the potential dangers, the UK's Financial Services authority stands accused of trying to cover up the fact that they were warned before time by Peter Moffat.

At a previous Select Committee meeting on October 22, FSA Managing Director, John Tiner stated that there was 'no correspondence I'm aware of. Mr Aitkin [FSA employee, Rob Aitkin] has no particular recollection of correspondence with the Guernsey authority.'

According to reports, Sir Howard apologised to MPs for the mistakes which had been made, but strenuously denied that Mr Moffat had later been 'leant on' by the UK regulator to downplay the content of the letter when the crisis first began.

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