THE leading City watchdog yesterday defended one of its managing directors against accusations that he faces a conflict of interest in an investigation into the split-capital trust scandal.

John Tiner, a Financial Services Authority managing director, who has been presenting the watchdog’s case to MPs at the Treasury Select Committee, is a former partner at Arthur Andersen, the accountancy firm.

Class Law, the legal firm acting on behalf of thousands of investors that have lost money in the trusts, claims that Arthur Andersen was involved in marketing the schemes to clients. Partners at Arthur Andersen are to be named in investor law suits being prepared by Class Law.

Stephen Alexander, a partner at the firm, said: “It seems to me that Mr Tiner has a clear conflict of interest in this case.” Mr Alexander has written to the FSA to highlight the point.

An FSA spokesman yesterday disputed Class Law’s allegation, pointing out that Mr Tiner was not involved in the investigation into the trusts. He also pointed out that Mr Tiner was a global partner at Andersen, and not directly connected to the department that advised clients on the funds.

The spokesman said: “John Tiner is a responsible public official. This is an unjustified smear in an attempt to undermine the regulatory system.”

Mr Tiner and Sir Howard Davies, FSA chairman, will today appear before the Treasury Select Committee. The committee is set to question the two men on how investors in split trusts should be compensated.

The accusations of conflicts of interest will test the already difficult relationship between Class Law and the FSA. At last month’s hearing of the Select Committee, Mr Tiner accused Mr Alexander of exploiting investors by behaving like an “ambulance chaser”.

Split trusts were marketed to investors as low-risk. However, many are now facing losses on their investments because of the large falls in the value of share prices and their high levels of debt.

The FSA inquiry has been investigating allegations of collusion between split trust managers. Some 19 trusts have collapsed, with a similar number in serious financial difficulties.

The trusts’ problems were amplified by the high debt levels and a complex web of cross-holdings that increased losses in the funds when the world’s stock markets began to plunge.

Thousands of investors have lost millions of pounds in the trusts.

Today’s hearing is likely to be contentious, with the FSA likely to come under fire once again for failing to spot the problems with the trusts early enough.

Attempts by Class Law to take action against Andersen partners could be doomed to failure, as the accountancy firm in the UK has merged with Deloitte & Touche following its involvement in the Enron scandal.