FSA brokers ?194m split caps indemnity

The Financial Services Authority has brokered a £194m compensation fund for 40,000 investors who lost money in split capital trusts.

While dropping its investigation into the 18 firms which paid into the pot, the City regulator is continuing to investigate four other firms and eight individuals involved.

On Christmas Eve, the City regulator finally secured the signatures of the two firms - Collins Stewart and ABN Amro - which had been holding back from agreeing to the terms of the settlement. The 18 have agreed to pay compensation without admitting any liability or without any findings of regulatory breaches.

Four individuals are involved in the pre-Christmas settlement, two of whom are named and two others who will be identified shortly. Others have received "private warnings".

Christopher Fishwick, the former head of investment trusts at Aberdeen Asset Management, has agreed not to work in a "controlled function" - essentially management - for seven years and David "Dotty" Thomas, a former corporate financier at Brewin Dolphin, has agreed to retire aged 71.

The settlement is the first of its kind for the City regulator, which has never before tried to broker a compensation deal between so many separate firms.It had aimed for £350m.

The £194m includes a central pot of £143m; £43.3m which Aberdeen Asset Management has put aside for investors in its Progressive Growth Unit Trust, and a further £7.6m. Aberdeen, which sold most of the products to the public, is also putting £35m into the central fund and might have to refinance its debt to make the payments. Its financial results, delayed twice, will be released on January 6.

A spokesman for the 18 firms said: "The FSA statement makes clear that no wrongdoing has been placed at the door of any of the firms involved in the settlement."

The compensation scheme is aimed at investors who bought "zero dividend preference shares" as low-risk products. When the stock market collapsed so did the trusts, some of which had invested in each other in a "magic circle".

Three of the banks involved - HSBC, ABN Amro and UBS - negotiated separately to the 15 other signatures and paid in less than some had hoped.

The amount of redress for investors - who must have lost a minimum of £250 to apply - will depend on the number who claim. Investors applying to the compensation pot, which will be administered by former HBOS finance director Mike Ellis, might get back 60% of their losses.

Investors cannot be forced to apply to the compensation pot, though, and can use the financial ombudsman. The firms hope the settlement will prevent investors trying to use the courts. The pot will only compensate investors from those firms making a contribution. The four firms which pulled out are thought to be BC, Exeter, BFS and Teather & Greenwood.

The 18 firms involved are Aberdeen Asset Management, ABN Amro, Brewin Dolphin, Britannic Investment, Collins Stewart, Edinburgh Fund Managers, F&C Asset Management, Framlington Investment Management, Gartmore, Govett, HSBC, Insinger de Beaufort, Jupiter, Legg Mason, Le Masurier James & Chinn, Morley, New Star, Premier, Royal London Asset Management and UBS.