Coutts & Company has been fined £6.3 million by the Financial Services Authority (FSA) for mis-selling an investment fund to customers.
Numerous failings were uncovered in the way the private bank sold the AIG enhanced variable rate fund to its clients, who can now expect compensation.
The regulator said the 427 high net worth customers who were sold the fund between 3 December 2003 and 15 September 2008 had been exposed to an 'unacceptable risk of an unsuitable sale'.
The firm was found to have generally informed customers that the fund was a cash fund which invested in money market instruments and could be seen as an alternative to a bank or building society account.
In reality, however, a significant proportion of the fund's assets did not meet this description, and instead sought to deliver an enhanced return by investing in riskier asset backed securities and floating rate notes.
Yet it was not until the financial crisis of 2007 and 2008 that the true nature of the fund came to investors' attention.
Following the bankruptcy of Lehman Brothers, AIG's share price fell sharply and led to a large number of investors wanting to withdraw their investments, including monies from the enhanced variable rate fund.
However, when the fund was suspended with customers prevented from immediately withdrawing all of their investment, many investors started to suspect that they had been mis-sold the fund.
In light of the findings, Coutts is reviewing the position of all customers who remained invested in the fund at 15 September 2008.
Anyone found to have suffered a loss as a result of its failings will be compensated.
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