On 5th August the FCA announced that broker SVS Securities had entered Special Administration.
Once again, as in the case of Beaufort Securities, this is a situation that will cause great concern and, at a minimum, some inconvenience, for SVS clients. Whilst a firm is in special administration, clients are not able to trade securities held on their behalf, or access money held on their behalf, including dividend payments.
It is disappointing that it has taken until 12th September for clients to receive a substantive update from the Special Administrators, Leonard Curtis (LC). The update states that SVS held client assets and money totalling ~£300m (so roughly half of that held in the Beaufort case), but this is held on behalf of 21,000 clients – more than in the Beaufort case.
The process & outcome being proposed by Leonard Curtis appears very similar to that of the Beaufort case, but we would hope that this can be completed more expeditiously than was the case with Beaufort. Ultimately, it is expected that client assets and monies will be transferred to another FCA regulated firm and clients will regain access to their property once this transfer is completed, via the normal client facilities offered by the receiving firm. As in the Beaufort case, the costs of the administration (not yet specified, but stated by Leonard Curtis as being “material”) will be borne by SVS clients. Fortunately, LC seem to be proposing the approach to allocation of costs that we argued for and won in the Beaufort case: costs relating to the securing and return of client assets will be set at a fixed amount per transfer of client assets; OTOH costs relating to return of client monies will be a percentage of monies held (I understand that the cost allocation against client monies has to be done in that manner, under the Special Administration Regime).
LC states that, as in the case of Beaufort, this means that for most clients the Special Administration costs will be met in full by the FSCS (Financial Services Compensation Scheme), so they should not suffer any losses. Worryingly, however, LC also state that there are several hundred SVS clients who may face losses.
LC’s client update describes a similar sequence of events to those that occurred in the Beaufort case.
Firstly, they will make a proposal for conducting the Special Administration. This will be delivered to clients and creditors by 25th September and will be followed by a meeting for clients and creditors, scheduled for 10th October. At this meeting, clients can question LC and will have the opportunity to form a creditors committee to liaise with LC regarding the conduct of the Special Administration. This is recommended as a mechanism to hold LC to account for their actions.
In the meantime, efforts will be made to reconcile client assets and monies actually held by SVS with the records of client holdings. Clients will be informed of the assets and money held to their account and an online portal will be provided to allow clients to confirm whether or not they agree that LC’s assessment matches their own records of the assets and money that ought to be held on the client’s behalf.
It is necessary to agree these client accounts before the assets and money can be released to a new firm, restoring control to clients.
One issue that this case again raises is the risk of holding substantial monies in brokerage/platform accounts. In the event of the broker collapsing, client monies are likely to have a percentage deducted to cover the administration costs, with a risk that the cost deduction may not be fully covered by the £85,000 FSCS compensation limit. Where possible (and this could be problematic for SIPP and ISA accounts), it is preferable to hold uninvested monies in bank accounts rather than leaving them in brokerage accounts, until you are ready to invest them.
Sadly, this appears to be another case where the Special Administration Regime is causing anxiety to clients of yet another failed firm. ShareSoc continues to campaign for improvements to the Regime, and to the handling of such cases by the FCA. If you too are concerned, please join our campaign, here: https://www.sharesoc.org/campaigns/beaufort-client-campaign/
We would be happy to assist and support SVS clients, as we have done in the past for Beaufort clients, but request that you join ShareSoc as a full member, if you would like to call on our support.