The Financial Services Authority has today fined Coutts, the private banking arm of part-nationalised RBS, for mis-selling an AIG bond to a large number of wealthy private clients. These clients suffered a loss in their investment as a result of the collapse of AIG in 2008. The FSA held that Coutts breached Principle 9 of the FSA Handbook, which requires that a “firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely up on its judgement”. The FSA final notice is here and its press release is here.
The FSA’s decision to fine Coutts will focus more attention on the recent and very bank-friendly High Court judgment in Rubenstein v HSBC, which we discussed in detail in this post. In Rubenstein, the claimant – who had been sold the same AIG product by HSBC as was sold by Coutts – was unsuccessful. Although the High Court found that HSBC had given Mr Rubenstein negligent advice in recommending the AIG bond, the court took the view that the loss suffered by Mr Rubenstein was too remote to be recoverable as damages (because, the court held, when the bond was sold to Mr Rubenstein in 2005 the collapse of AIG was not reasonably foreseeable) and so awarded him only nominal damages.
The facts in the Coutts and Rubenstein cases appear very similar – with both banks having sold the AIG bond as being a safe alternative to a traditional bank deposit account, when it was not – although of course one is an action by a regulator for breach of its rulebook and the other is a civil action in tort and/or contract. However, the FSA final notice in the Coutts case states that:
“…four sets of legal proceedings have been commenced against Coutts by Coutts’ customers in relation to the recommendations they received…Those proceedings have not yet concluded.”
Those proceedings are presumably on similar grounds to the Rubenstein case - Mr Rubenstein was told by an HSBC private wealth adviser that “we view this investment as the same as cash deposit in one of our accounts” – so it will be interesting to see if the court in those cases reaches a different decision from that in Rubenstein.
The Coutts AIG Action Group website is here.
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