The number of split cap firms being investigated by the City watchdog for alleged wrongdoing has more than doubled since November.

John Tiner, managing director of the Financial Services Authority (FSA), told a conference of investment trust professionals on Tuesday that the scale of the investigation had "increased significantly" to at least ten, and had widened to cover managers and brokers.

Our analysis raises the question of whether investors do, in fact, take sufficient notice of risk warnings in complex documents. John Tiner FSA

Investment trusts are not regulated by the FSA, but the City regulator had come under fire previously in its role as overseer of the UK Listings Authority.

Mr Tiner said research carried out by the FSA subsequently had proved risk warnings were in place, suggesting that it was in fact investors who did not take "sufficient notice" of risk warnings.

Enforcement proceedings

Last autumn, the FSA formerly referred a number of companies to its enforcement division for investigation.

Mr Tiner said the investigation was akin to a "spider's web" - it had started small and focused and had grown bigger.

Last month the scale of the investigation was increased to more firms.

"How many firms are being investigated? Well, when I was asked that question by the Treasury Select Committee last year I said the number could be counted on one hand. I have two hands and they are now both full," said Mr Tiner.

Even if the firms are found to have breached FSA rules, it could be some time before formal action is taken against the companies, as the procedure is complex, and lengthy.

The company can appeal once a final decision is made by the FSA.

Listing rules

The split-capital trust fiasco is the latest scandal to hit the financial services industry.

The complex investments have been popular with people saving for school fees or retirement.

But a number of trusts, which had high levels of debt and cross-holdings, collapsed when the stock market worsened.

In November, the regulator came under fire by the Treasury Select Committee for failing to protect investors and accused the regulator of a "cover-up".

Mr Tiner said on Tuesday that the FSA had reviewed a sample of investment company prospectuses issued in the UK between 1998 and 2002, together with those trust that had been suspended by Autumn of 2002.

He said the research had concluded that companies had increased their risk warnings, in particular when they had proposed to increase their borrowings and when they intended to use the company's funds to buy the shares of other investment companies.

Issuers also regularly indicated that there were risks to capital, he said.

"Our analysis raises the question of whether investors do, in fact, take sufficient notice of risk warnings in complex documents.

"Some may conclude from the fact that even offers that were promoted with appropriate warnings were well-subscribed, that they do not," he said, adding that investors must nevertheless take responsibility for their own investment choices.

Mr Tiner said the FSA was continuing to investigate certain firms and will take "appropriate action against them".

Mirroring comments made by John McFall, chairman of the Treasury Select Committee, on Monday, Mr Tiner said the whole sector had been affected by the fiasco.

Compensation gap

The Financial Ombudsman service is currently dealing with 2000 complaints on split caps.

The maximum �100,000 compensation payment, however, covers only products bought through intermediaries.

People who bought direct are not covered and must seek redress themselves.

Mr Tiner called on the Association of Investment Trust Companies and the investment trust industry to take steps to fill this gap "in the interests of restoring consumer confidence in this area".