By Marcus Leach

The Financial Services Authority (FSA) has fined Coutts & Company (Coutts) £6.3m for failings in connection with the sale of an AIG fund (the Fund).

Coutts has also agreed to carry out a past business review, overseen by an independent third party and will compensate all customers who have suffered a loss as a result of its failings.

Between 3 December 2003 and 15 September 2008 Coutts sold the Fund to 427 high net worth customers, with investments totalling £1.45 billion. The Fund invested in financial and money market instruments but unlike a standard money market fund, it sought to deliver an enhanced return by investing a material proportion of the Fund’s assets in asset backed securities and floating rate notes.

During the financial crisis of 2007 and 2008, the market values of some of the assets in the Fund fell below their book values. On 15 September 2008 Lehman Brothers applied for Chapter 11 bankruptcy protection in the US and AIG’s share price then fell sharply and suddenly. A large number of investors sought to withdraw their investments and there was a run on the Fund. As a result the Fund was suspended with customers prevented from immediately withdrawing all of their investment 5.

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