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Independent view

I cannot deny it, I am a worried man. I hear from numerous quarters that the precipice bond misselling scandal (if indeed they were missold) will be bigger than anything we have seen before.

That in itself is pretty serious but what is worse is that a few bright sparks have been sharp enough to devise a method of walking away from any liability which the FSA may impose on them regarding precipice bonds.

This is what you do if you have done a bit of naughty precipice bond selling.

You make sure that you have a subsidiary company – which clearly did all the selling, your main company wouldn’t dream of selling one of those would it?.

You then hang your head in shame and say: “Oh dear, I have to let this subsidiary company go bust because it cannot meet its liabilities.”

I thought there were rules on corporate governance today but it would appear that you can do this if you are a public company.

How can any director of a public company be fit and proper for the job, having let a subsidiary go bust?

Before you become a director of a public company you have to tell the Stock Exchange about any company in which you might have been involved that has not covered itself with financial glory.

Anyway, to return to my theme, while this practice continues, it is likely that the number of businesses which will still be in existence to fork out for the compensation scheme payment will reduce rapidly.

This could mean that a few businesses, which were on the cusp of survival, might not survive and will be forced into dumping, legitimately, their liabilities on to the compensation scheme.

At the same time, many life companies and other institutions which, out of the goodness of their hearts, used to chuck a few quid into the compensation scheme, are suggesting that enough is enough.

We are already hearing serious moans about this year’s levy. As I state above, if a public company can get away with it, why shouldn’t we all?

Times have been, and still are, hard enough just running our own businesses and coping with clients who are clearly worried about all the poor publicity that our industry gets. Having to fork out for other people’s misdemeanours in increasing numbers might be the last straw.

The Government is suggesting that people should save more, although it would appear to me that the populace as a whole has only been emulating the profligacy of the Government.
The present situation could result in the total demise of our industry and who will be left to sell these investments to people? The banks, building societies and the life companies’ direct salesforces? They have proved categorically every time they have had a go that their acquisition costs are greater than the broker market’s.

Low-cost products will only be offered if the major company bosses believe it will curry favour with the government and will certainly not be in the interests of their shareholders.

Peter Hargreaves is managing director of Hargreaves Lansdown


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