Enhanced security when dealing with your broker
Safety of client funds should always be a paramount consideration, but it took the high profile failures of MF Global UK and WorldSpreads in 2011 and 2012 to raise awareness of this critical issue. According to KPMG, the administrators of WorldSpreads, the shortfall in the company’s assets is such that clients with funds not covered by the £50,000 statutory protection limit are only likely to receive around 9p or 10p in the pound. For some this could spell financial ruin.
We wanted to ensure that we never fell victim of this again and that’s when we came up with the idea of being able to reassure our clients that we were protected in the event of broker default.”
Extra protection Brokers and their counterparties all have to be authorised by the Financial Conduct Authority and abide by their Client Money Rules. This means that client funds have to be held in segregated accounts away from the firm’s own money. The theory is that if the broker fails, retail customers should always get their cash back, but that certainly wasn’t the case with WorldSpreads and MF Global. Where a counterparty is declared insolvent and there is a shortfall in the segregated client assets, the FSCS will pay compensation of up to £50,000 per retail customer. Anyone with a balance in excess of this upper limit would not get all their money back. This is no longer the case for retail clients of Central Markets who sign up to the new terms of business agreement. The company has taken out insurance underwritten by Lloyd’s of London that allows them to make a claim if one of their counterparties goes bust with a shortfall in their retail customer funds.
Adam Stark, Dealing Director at Central Markets, says that most of them within the firm have been involved in retail broking for many years and have all been indirectly involved in the collapse of both MF Global and Worldspreads.
In the unlikely event that this should happen, the policy would fully reimburse their clients even where they have more than £50,000 in their account. The new product is known as Tradeassured and it has been designed to cover customer deposits and collateral held in segregated accounts away from the firm’s own money.
“Confidence among investors in the aftermath of these high profile broker collapses was fragile. We as a firm were also feeling vulnerable as our future as a business was also in the hands of a broker counterparty.
September 2013
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