by Paul Lewis Money Box

Investors who lost up to �3bn in split capital investment trusts could have been warned as long ago as December 2000, a year before the first trusts began to run into difficulties.

Up to 50,000 people may have lost money in splits - investments marketed as low risk but structured in such a way that they magnified stock market changes.

Recent falls in the market have led to 19 trusts suspending their shares or going into receivership or insolvency, leaving investors with nothing.

But the BBC's Money Box programme was told on Saturday that financial regulators in Guernsey spotted the dangers nearly two years ago.

Warnings

The regulators insisted warnings were put into prospectuses used on the island.

BBC Money Programme journalist Michael Robinson has evidence that Peter Moffat, Director of Investment Business at the Guernsey Financial Services Commission, insisted investors were warned of the dangers of what he called "systemic failure" in split capital trusts.

Early in 2001 he conveyed his views to his opposite number at the UK's Financial Services Authority.

But in the UK sales literature for Aberdeen, the main company behind these products, continued to claim they provided "certainty" for "risk-averse investors" with "stable quasi-guaranteed growth" and "predictable returns".

By comparison, Guernsey literature warned "split capital investment trusts... may themselves have cross holdings... [which]... may give rise to a systemic risk should there be failures in the sector."

The literature also said: "there may be limited liquidity in these securities and they may be difficult to realise."

The FSA

The UK regulator did not insist on similar warnings in literature published in the UK.

In October 2001 the Chairman of the FSA told MPs on the Treasury Select Committee that the FSA "had not had drawn to their attention many cases where retail investors had been inappropriately put into these trusts."

At that time MPs did not know the FSA had missed the dangers which the Guernsey Financial Services Commission had spotted and acted on.

In the year ending March 2002, the GFSC employed 70 staff and had an expenditure of �3.8 million.

In the same year the FSA spent �204m and employed 2121 people.

The FSA will be testifying again to MPs on the Treasury Select Committee on Tuesday 22 October.