UK watchdog probes Queen's bankers over fund sales

LONDON (Reuters) - The UK's Financial Services Authority (FSA) has launched a probe into sales of a bond fund by Royal Bank of Scotland's private banking arm Coutts, which counts Queen Elizabeth II among its clients.

"In July 2010, the FSA notified RBS Group that it was commencing an investigation into the sale by Coutts & Co of ALICO (American Life Insurance Company) Premier Access Bond Enhanced Variable Rate Fund to customers between 2001 and 2008," RBS said in a statement on Friday.

RBS added that it is "cooperating fully" with the probe into Coutts. A spokeswoman at the FSA confirmed the statement was accurate but would not comment further.

During the financial crisis Coutts found itself under fire from some of its rich customers including loyalty scheme millionaire Keith Mills over investments in savings products issued by U.S. insurer AIG.

Mills has mounted a high profile publicity campaign, including placing billboard advertisements criticizing the private bank close to its headquarters on London's Strand.

The news of the probe came alongside RBS second quarter results which showed lower impairment losses had helped operating profit rise from the first quarter.

As part of a separate probe, the FSA said earlier this week it had fined RBS 5.6 million pounds ($8.91 million) for UK sanctions control failings at Coutts and other units, its biggest fine to date in pursuit of its financial crime objective.

AIG in March agreed to sell ALICO to MetLife Inc.

($1=.6288 pounds)

(Reporting by Chris Vellacott; Editing by Mike Nesbit)