The Times: Precipice bonds ban just the start, says FSA: “The tough talk from the City’s main regulator comes just a week after it hit Shell with a £17 million fine for misleading investors over its oil and gas reserves.” (ShellNews.net)

By Patrick Hosking, Investment Editor

September 02, 2004

THE Financial Services Authority yesterday promised more scalps from the precipice bonds scandal as it imposed its first ban on an independent financial adviser for mis-selling.

The tough talk from the City’s main regulator comes just a week after it hit Shell with a £17 million fine for misleading investors over its oil and gas reserves.

The ban on David M Aaron (Personal Financial Planners), which mis-sold precipice bonds to almost 8,000 clients, was largely symbolic because the firm is in liquidation.

But it was accompanied with strong hints that more providers and IFAs could face fines, bans and public censure. “This won’t be the last time you’ll hear from the FSA on precipice bonds,” an FSA spokesman said.

About a quarter of a million people invested £7.3 billion in precipice bonds between 1999 and 2002 and are estimated to have suffered losses of about £2.6 billion. The bonds typically offered an alluring rate of interest, but the capital was not guaranteed and could be lost if stock markets fell sharply. Hordes of investors lost money after the market collapsed in 2000. It later emerged that some bonds were sold to unsuitable people and that risks were often not fully explained.

Aaron issued product endorsements billed as “independent” but in fact written by paid journalists, the FSA said. The company played down risks and failed to carry out suitable client assessments. It also failed to maintain adequate records.

The ban extended to the four directors, David Aaron, his sons Michael and Stephen Aaron, and the compliance director, Andrew Jones. However, Mr Jones has since applied to be authorised to trade as an IFA and has been cleared to do so in a junior capacity.