The Beaufort Securities’s scandal has triggered a petition to Parliament to change the law relating to the payment of insolvency practitioners.
All those controls over "designated client money accounts" and custody accounts in nominee names count for nothing on insolvency. In fact, you can throw the FCA handbook out the window! In come the insolvency practitioners and say "you can't have your money back without paying us!" This has happened with Beaufort Securities. It is a sort of institutionalized blackmail.
This is legal and possible because of a certain unknown Rule 135 of the Special Administration Regime that applies to investment banks and allows administrators to use client shares / assets to fund the administration on the collapse of a stock broker or wealth management firm. This provides for the costs of distributions of client assets to be paid for out of the assets themselves.
The money and assets does NOT belong to the company - it belongs to the account holders and is held separate from the company.
Client money being used to fund company insolvency? You would be forgiven for not knowing that this could happen.
The turnover for Beaufort securities in the year to 2016 was just £13m....yet PWC are proposing to charge £50m, negotiated down from an initial £100m that is described on the PWC website as “conservative”.
It turns out there is a loophole in the law that allows this to happen with investment banks….
The difference though, is that although licenced as an investment bank the vast majority of Beaufort’s activities were simply related to acting as an ordinary DFM fund manager.
Sign the petition today!