Information on what you should do if you were a customer of the firms.
When will I get my client money and custody assets?
The administrators are using a Distribution Plan to set out how they are returning client assets to customers. This is a plan which has now been approved by the Beaufort creditors’ committee and the Court.
Under the Distribution Plan most custody assets will start to be transferred to a nominated broker. The administrators expect that a large proportion of the client assets will be transferred in a first tranche at the end of September 2018. Any remaining client assets not transferred in the first tranche and that are eligible for transfer will be moved to the relevant nominated broker in later tranches. In most cases, the administrators will be transferring client money alongside custody assets to a nominated broker.
You can obtain further information on the Distribution Plan from the administrators’ website. Clients should contact the administrators directly if they have any questions on the Distribution Plan.
A small number of clients have disputed their statement of client asset holdings. The administrators are working on resolving these disputes with the relevant clients, and once these disputes are resolved those clients’ assets will be available to be returned.
Will I get all my client money and custody assets back?
The administrators have confirmed that nearly all the assets and money which BACSL should have been holding for clients are under the control of the administrators, and for the vast majority of clients the Financial Services Compensation Scheme (FSCS) will cover any shortfalls of client money or custody assets and all the costs of distribution. There is a small number of retail clients (fewer than 10) for whom the costs of distribution and any shortfalls will be over the FSCS limit of £50,000, and those clients will have to pay any costs over this limit.
Those clients who are not eligible for FSCS compensation – or have specifically requested not to receive FSCS compensation – will need to pay the costs of distribution of the client money and custody assets, and if there are any shortfalls will not receive back all their client money and assets. There are various options for these clients to pay the costs of distribution of custody assets which are set out in the Distribution Plan.
Do I need to use a claims management company?
We are aware that some claims management companies (CMCs) have been approaching clients of BSL and BACSL, offering to help in the recovery of assets. You should proceed with caution if you are approached by one of these companies.
For the vast majority of Beaufort’s clients, there is no benefit in involving a third party in reclaiming your assets. As set out above, the administrators have produced a Distribution Plan, under which most client money and custody assets will be transferring to a new broker, and in most cases you should get back all your client money and custody assets, with the FSCS covering the costs incurred.
If you use a CMC to assist in the return of your assets, the CMC is likely to seek a fee which may actually reduce what you get back.
If you are considering using a CMC to assist with the return of your assets, we suggest that before you decide to proceed with this route you first discuss this with the administrators using the contact details provided on their website.
Will I have to pay for my assets to be returned?
The administrators have agreed with the creditors’ committee and the FSCS a cost allocation that will see the FSCS covering 94% of the costs for returning assets to approximately 17,500 retail and corporate clients.
The cost for the return of custody assets is a flat fee, where maximum costs will be capped at £10,000 per client account and will not exceed the value of the custody assets in each client account. The costs of returning client money will be a percentage of each client money balance, which will not be more than 10%. The FSCS will cover these costs of returning custody assets and client money for all clients except those who are not eligible (ie some of the corporate clients), or those who have specifically refused to accept FSCS compensation.
Fewer than 10 retail clients will need to pay any costs at all. Most of the remaining 6% of costs will be borne by corporate clients.
What do the costs of administration cover?
The estimated costs cover more than the administrators’ fees, with the figure being made up of operational costs (retained employees, various third party suppliers to the special administrators, such as IT service providers, telephony providers, electricity providers, landlords and others), PwC fees, lawyers’ fees, Reserves and VAT (at 20%). PwC have revised the duration of the administration to two years and accordingly revised down the administration costs to £55 million. PwC have confirmed that if the duration of the administration is shorter, then the costs incurred will be lower. The legislation, in particular Rule 135 of The Investment Bank Special Administration Rules 2011, provides for the costs of distributions of client assets to be paid for out of the assets themselves.
All costs incurred by the administrators will be subject to approval as set out in insolvency legislation and ultimately are subject to jurisdiction of the Court. PwC fees will be subject to detailed scrutiny by the creditors committee and are ultimately subject to Court approval.
As noted above, the FSCS will cover these costs of returning custody assets and client money for all clients except those who are not eligible (ie some of the corporate clients), or those who have specifically refused to accept FSCS compensation.
What is the FSCS and will they cover any other losses?
The FSCS protects consumers when financial services firms fail. It is the compensation scheme for customers of UK authorised financial services firms. It has eligibility criteria both in respect of the people and businesses who are covered.
The FSCS will cover custody assets and client money shortfalls, including the costs associated with their distribution back to clients, for eligible clients up to £50,000.
Some clients may have suffered losses caused by BSL because of mis-selling, in which case they may bring a separate FSCS claim if they are eligible for compensation. If any clients have a Financial Ombudsman Service award in respect of BSL mis-selling then they can make a separate claim of up to £50,000 from the FSCS (ie this is in addition to any claim for recovering the costs associated with the return of their custody assets and client money from BACSL).
You can obtain further information about the FSCS on it's website.
Why the change in value of custody assets?
The administrators obtained an independent valuation of the custody assets which provisionally valued the portfolios at around £500 million. An independent valuation was needed because of various different valuations being produced following the administrators’ appointment.
Is the FCA overseeing the administration?
The firms are still authorised by the FCA and they remain subject to supervisory oversight and the FCA’s rules. In relation to BACSL, the administrators have been appointed by the Court as Special Administrators, in relation to BSL, as administrators. They are officers of the Court and need to comply with all insolvency law. The individuals appointed are also licensed insolvency practitioners and supervised by the Institute of Chartered Accountants in England & Wales (ICAEW). We are continuing to liaise closely with the administrators.
Why did the FCA appoint an administrator?
The FCA had concerns about BSL’s discretionary fund management business and BACSL’s client money and assets systems and governance. We placed requirements on the firms in October 2016, December 2016 and September 2017 to manage and mitigate risks of their activities. We continued to supervise the firms throughout the period, and in February 2018 we concluded that the firms were insolvent. On 1 March 2018, we applied to the Court to place both firms into insolvency proceedings. Following an emergency hearing, the Court placed both firms into insolvency; appointing three insolvency practitioners from PwC as administrators of BSL and special administrators of BACSL. We also imposed requirements on the firms, with immediate effect, which stopped the firms from conducting any regulated activities and stopping them from disposing of any firm or client assets without our consent. At the same time the US Department of Justice took action against BSL and various other parties.
How did the FCA appoint the administrators from PwC?
The FCA had detailed discussions with three different restructuring firms who had experience of insolvency of this nature and complexity, were able to undertake the work on short notice and had the resources and expertise to deal with large holdings of client assets. Following a review by FCA senior management, qualified insolvency practitioners from PwC were conflict checked and consented to act in the insolvencies.
In accordance with the Investment Bank Special Administration Regulations 2011, the appointment of the special administrator is by Court Order. In this case, this was following an application by the FCA which had been approved by the Regulatory Decisions Committee (RDC). The RDC is an FCA Board Committee that is operationally separate from the rest of the FCA and for these purposes was the final stage of decision making of the FCA.
Is it possible to hold shares ‘directly’ rather than in a nominee account?
The use of nominees allows a firm to hold clients’ assets in such a way that they are ring-fenced from the firm’s own assets, and firms are required to maintain appropriate books and records to clearly identify which assets are held for which client. There are a number of advantages both to firms and clients from holding custody assets in this way, including reduced costs to clients.
If a client wishes to hold shares directly then they can do this either by holding paper share certificates or using a sponsored CREST account. However, it is not possible to hold shares in these ways in an Individual Savings Account (ISA) or self-invested personal pension (SIPP). Exercising voting and other rights is also set out as a specific requirement for assets held within ISAs.
What are the implications of holding client assets in a nominee account?
If clients hold shares through a nominee, they do not appear directly on the shareholder register, but they are still able to exercise voting and other rights, depending on the contractual arrangements with their custodian. Under the Investment Bank Special Administration Regulations 2011, administrators are able to deduct costs of distribution from all client assets a firm holds on behalf of clients, whether the assets are held in the name of the client or in the name of a nominee.
What happens next?
Now that the Distribution Plan has been approved, the administrators aim to start returning client money and assets in September 2018. For further details please see the administrators’ website.
Where can I get more information?
You can obtain further information about the FSCS on it's website.