In November 2011 we reported on the £6.3 million fine imposed on Coutts by the Financial Services Authority for mis-selling an AIG bond to a large number of wealthy 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”.
Sky News is today reporting that Coutts has begun offering customers compensation for this mis-selling:
“Coutts, which is owned by Royal Bank of Scotland, is writing to more than 400 wealthy customers following a review of their cases carried out by the City law firm Herbert Smith.”
Any decision to pay compensation by Coutts is interesting in light of the judgment in the civil case of Rubenstein v HSBC in 2011 - where the court agreed that HSBC had negligently sold the AIG bond to Mr Rubenstein, but held that the collapse of AIG was not reasonably foreseeable and so HSBC was not liable in damages. This is what we said at the time of the FSA’s fine:
“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 underlying the Coutts FSA fine and the Rubenstein case were very similar – 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 we now have a situation where HSBC was found not liable to pay compensation by a court, but on a similar set of facts Coutts are reported to have done so following an FSA fine.
See also: UBS fined £9.45m for failings in its sale of an AIG fund – Financial Services Authority, 12 February 2013