In a previous blog post on the Law Commission’s consultation on Intermediated Securities I queried their claim that all investors in nominee accounts had the option to use a segregated account (i.e. a “designated account” where your name is on the share register, not just the nominee operator’s). They claim this is mandated by an EU regulation. This is extremely important because a simple “pooled” nominee account that most stockbrokers use does not give you clear ownership of the shares. If the broker goes bust and has not properly recorded who owns what (as is often the case), you may have difficulty recovering your shares. It also means that the company you own shares in cannot communicate with you and neither can anyone else.
HAVING YOUR NAME AND CONTACT DETAILS ON THE SHARE REGISTER IS EXTREMELY IMPORTANT!
I have now actually looked into the true position with three different stockbrokers I use for ISA and SIPP accounts. This is what they said (in summary, edited for brevity):
- We are planning to offer segregated accounts and we expect this to be available mid-next year.
- We are working on implementing this with the expectation it will be an option for account holders next year, but it will be considerably more expensive than our current fees.
- These requirements come into effect as soon as the CSD, in our case Euroclear, receives its authorisation from the regulator Bank of England as a CSD – this is expected to be Q1-2020. We will offer segregated accounts when obliged to do so. Charges will be materially higher than for a pooled nominee account given the additional processing and operational costs involved.
In summary therefore, they concede it is legally required but they are not rushing to implement it and they will be deterring people from using that option by high and unjustified charges. In essence this is disgraceful.
I will be making this plain to the Law Commission.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )