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Abbey fails to stop FSCS chasing it for alleged precipice bond misselling

Abbey has failed in its attempt to challenge the Financial Services Compensation Scheme’s legal authority to sue the firm for £21m for alleged precipice bond misselling.

The FSCS is suing Abbey as part of its attempts to recover claims the scheme has paid out to around 1,800 investors who were missold precipice bonds by IFAs who have since gone out of business.

Last year Money Marketing first revealed the FSCS’s intention to go after providers it believes are part responsible for the misselling of precipice bonds in cases where the IFA has gone bust.

David Aaron Partnership, RJ Temple and Berry Birch & Noble Financial Services are among the adviser firms declared in default by the FSCS who have large numbers of claims against them.

Abbey had claimed that the FSCS was acting outside its authority by attempting to recover claims from providers.

But in the High Court yesterday, Mr Justice David Richards ruled the FSCS could go ahead with its claim. Abbey has not decided whether to appeal.

Pending any appeal, the full trial is expected to take place in May 2009.

The products were promoted by NDF and the court heard evidence that the FSCS contends that “the marketing material for the products failed to make clear the risks associated with them and that investors were induced to invest in the products in reliance on misleading statements and material omissions”.

The FSCS contends that if the marketing material had “fairly disclosed the degree of risk in the products” clients would not have invested in the product.

The FSCS claims against NDF are for breach of statutory duty, negligence and misrepresentation. It claims that Abbey collaborated with NDF in the development and promotion of the products and in marketing them to investors through IFAs.

Abbey claims the plans and promotional material were issued by NDF and that it has no responsibility for the misselling as it did not give investment advice to retail investors or issue promotional material.

A spokesman for Abbey says: “Naturally we are disappointed with the outcome, but of course this was only a hearing in relation to two preliminary points of law and is not a final decision on the case. The judge has granted permission for us to appeal to the Court of Appeal in relation to his decision and we shall be reviewing this option in conjunction with our legal advisers.”

Compliance consultant Adam Samuel says: “The judgement in this case seems reasonable and fairly predictable. It raises a bigger picture question about the role of the FSCS. Is it just to compensate people with claims against firms who have gone bust or does it have a further function to reduce its own levy by seeking compensation from third parties to reduce the amount it loses when it pays claims?

“It seems sensible to allow the FSCS to do both so long as it exercises that power responsibly. If the FSCS has a valid claim against Abbey, it seems appropriate to allow it to pursue that claim.”

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