The Beaufort stockbroker case has highlighted that the investments I hold with brokers, that are supposed to be ring-fenced as per FCA CASS requirements, are not actually ring-fenced, and could eventually be taken by unscrupulous administrators charging extortionate fees. Basically this a form of legalised theft, and what is currently occurring makes a mockery of regulatory protections for investors in the UK. This is extremely worrying.
I urge all of you to write to your MPs, as what is currently happening to Beaufort clients could happen to any investor.
Sharesoc have provided the following template:
Dear [NAME OF MP],
I write to highlight my concerns over the special administration of Beaufort Securities, who were one of the largest private client stockbrokers in the UK regulated by the FCA. This case has broad and troubling implications for all UK investors in shares, including those held in ISAs and SIPPs. Over 14,000 clients are directly affected by this matter.
The administrators (PwC) have confirmed that the assets of Beaufort clients (shares and money) were ring-fenced as per FCA CASS requirements and were substantially complete apart from a few isolated deficiencies. Nevertheless, PWC has suggested that it may cost as much as £100 million over four years to wind up the company and return assets at the clients’ expense. Under growing pressure from clients, PwC has recently revised these estimates to £55 million over two years.
[INSERT YOUR OWN SITUATION HERE DETAILING HOW THIS HAS AFFECTED YOU OR WHY YOU ARE CONCERNED]
These estimates are totally disproportionate, given that they represent 10% of the approximately £550 million value of the ring-fenced client property held by Beaufort. Hundreds of clients may suffer substantial losses and hair-cuts, ring-fenced status notwithstanding.
By way of contrast, another broker, Fyshe Horton Finney, which had £300 million client assets was charged less than £3 million by its administrators (Harrisons) following its insolvency. It’s evident that PwC intends to treat this unfortunate incident as an opportunity to fleece 14,000 clients of £55,000,000!
There have apparently been 13 offers from third-party brokers to take over the client assets of Beaufort. A business transfer could resolve the matter quickly and at much lower cost, and such a solution has been used to good effect in previous broker failures.
Because this is a Special Administration under the very flawed 2011 Special Administration Rules, PwC can take its fees out of the client assets/funds held in “ring-fenced” nominee accounts - segregated accounts not available to be treated as assets of the failed business.
In just 2 months, PwC has already spent £6,000,000; That’s a run-rate of £3,000,000 per month to be funded from clients’ assets. There is a clear conflict of interest between the administrators’ duty of care in returning assets to clients in a timely fashion and their corporate motivation to generate fee income. It is very evident that PwC intends to treat this unfortunate incident as an opportunity to maximise its profits at the expense of Beaufort’s clients.
A review of any stockbroker’s terms and conditions shows that clients are not made aware that the cost of returning assets will be deducted from client assets and money in the case of broker insolvency. 14,000 clients invested their life-savings, including ISAs and SIPPs, through Beaufort under the reasonable assumption that ring-fencing provides an effective safeguard. The current debacle makes it clear that no investor is currently safe with any custody arrangement in the UK.
It is imperative that fairness prevails and these clients who entrusted the financial system with their hard-earned life savings have their asset and money holdings returned without cost or delay. The FSCS, which is funded by a levy on financial institutions, must cover any and all costs incurred in returning ‘ring-fenced’ assets to clients.
I request that you ask the FCA to address the following questions:
What led the FCA to appoint PwC, was there any form of competitive tender process and did they review and agree the extraordinary cost estimates?
Why have the offers of third party brokers to take over the client assets not been seriously considered?
I ask you urgently to raise this issue with the relevant ministers requesting a review and revision of the Special Administration Rules. The relevant rule is rule 135 of the Investment Bank Special Administration Rules (England and Wales) 2011 (Statutory Instrument 2011/1301).
I also request an enquiry into the conduct of the FCA in this matter, and whether they have acted in the best interest of investors.
Further information regarding this matter can be found here: https://www.sharesoc.org/campaigns/beau ... -campaign/
You can find details of the campaign ShareSoc are running on this topic here: https://www.sharesoc.org/campaigns/beau ... -campaign/