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Split decision

Risk is always subjective. Years ago, zeros were deemed low risk but they turned out to be anything but. Yet now it has emerged that the Financial Services Compensation Scheme has different ideas.

It has rejected complaints upheld by the Financial Ombudsman because its perception of risk is different. It reckons that split-cap trusts were deemed to be low risk when they were sold. This could mean that in many cases zeros were not missold.

On the other hand, the FOS says they were not low risk, even though they were sold as having more safety features than a Volvo, hence the victory for many complainants.

IFAs have long felt they were unfairly treated throughout the split-cap saga. Certainly in the early days of the debacle, the Financial Ombudsman was confused with the complexities of split caps. It admitted that it had “got in a muddle” and that in one case the adjudicator “did not grasp” the case and that the complainant should reapply.

But that was when few knew what was going on. I recall a briefing with the FSA before the full scale of the debacle had unfolded and it seemed to have a sketchy grasp of who and what was involved. Indeed, it publicly said it would affect institutional investors rather than the retail sector. Later it would be revealed that 50,000 private investors would get a payout.

I find the FSCS findings perplexing, not just in the case of splits but also what it could mean for future compensation claims. It says its decision does not mean it overrules the FOS. Yet it applies different tests to cases and comes up with different verdicts – which obviously can render any previous adjudication by the ombudsman as obsolete (it ultimately is paying the compensation).

I have a great deal of sympathy for those investors who have been given false hope and after eight years have been told that they will not get compensation. Their disappointment will be compounded because many of those working for the firms made huge sums of money from split caps. The actions of BFS during the saga irked many. Aberdeen was the biggest player but at least it, along with around 20 other firms, stumped up tens of millions of pounds in payouts to investors.

Yet BFS was one of the firms that refused to join the infamous group and this meant that any investors in their trusts were excluded from the pot.

When the FSA put a lid on the scandal, it meant that BFS did not contribute any money to investors who lost out. As they had been cleared of any wrongdoing, legally they were not obliged to. Whether they did morally is another point.

That is hard enough for BFS investors to swallow but having their hope of compensation dashed after eight years of waiting – having already won their case – is extraordinary.

The FSCS says it uses different tests to make a judgment. Given the facts of this sorry saga, you would have hoped that common sense would have prevailed. What’s more, it seems farcical that the FOS and FSCS do not share the same system when deciding who wins and loses.

Paul Farrow is digital personal finance editor at the Telegraph Media GroupMoney Marketing

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