And you thought your investment money was safely 'ring-fence
Discussion
NickCQ said:
Wind-up costs. If they are not paid the outcome for investors will be much worse.
We might be at crossed purposes, Nick.
I think you must be referring to the direct share holders and investors in a failed business.
What has come to light with the Beaufort failure, seems to involve customers who have invested in funds, ISAs and Sips etc.
If I have understood correctly, the customers savings are being used to pay creditors.
Some customers are expecting to lose 40% of their savings.
There he been comment about a little known law change involving ring- fencing, in I think 2011.
I was shocked to see initial reports that holders of assets > £150k could see “haircuts” as a result of insolvency fees. I was surprised because:
1. Huge regulatory pressure has been placed on the separation of client and corporate assets during the last decade
2. Similarly onerous attention has been paid to regulatory capital requirements for businesses holding client assets
My own experience - as a CF1 director of a leading fund management business - was that the levels of safeguards in place to protect investors were beyond belt and braces.
So, I assume that either the regulatory requirements were not being met (eg. the required regulatory capital was not in place) or some form of yet-to-be-reported fraud/criminality has occurred. I find it inconceivable that clients with assets in regulated mutual funds have assets at risk.
I am watching the story closely and am interested to hear views from other PH’ers with relevant exposure and/or knowledge.
1. Huge regulatory pressure has been placed on the separation of client and corporate assets during the last decade
2. Similarly onerous attention has been paid to regulatory capital requirements for businesses holding client assets
My own experience - as a CF1 director of a leading fund management business - was that the levels of safeguards in place to protect investors were beyond belt and braces.
So, I assume that either the regulatory requirements were not being met (eg. the required regulatory capital was not in place) or some form of yet-to-be-reported fraud/criminality has occurred. I find it inconceivable that clients with assets in regulated mutual funds have assets at risk.
I am watching the story closely and am interested to hear views from other PH’ers with relevant exposure and/or knowledge.
Edited by WindyCommon on Tuesday 12th June 14:24
Your points 1. and 2. WindyCommon, are precisely the aspects during recent years, which have (mistakenly it seems) reassured investors that their money is safe, and kept separate from the assets of the provider.
I have recently been thinking of moving some ISA assets to another provider, as a fee saving exercise.
This Beaufort fiasco has made me think again, and for the time being will stay with a (hopefully) very solid firm.
Investors are happy to take market risks, but not the unknown risk of a provider suddenly 'tipping over'.
The recent example of a top four accountant, giving a 'going concern' OK, just a few months before collapse, does not help us either.
It seems there may not be any warning signs.
I don't know what caused Beaufort to fail. Do you know what went wrong?
WindyCommon said:
I find it inconceivable that clients with assets in regulated mutual funds have assets at risk.
I believe part of the issue is that a significant fraction of the assets are in less liquid instruments. There's discussion in this thread:https://www.lemonfool.co.uk/viewtopic.php?p=142281...
Jon39 said:
It seems there may not be any warning signs.
I don't know what caused Beaufort to fail. Do you know what went wrong?
The shocking situation is that the FCA did nothing for a decade. Everyone in the industry knew what that firm was and the people behind it. The FCA were warned repeatedly by other firms just like they were warned about the excessive margins and breaches of KYC/AML by all the passports OTC firms.
The truth is that the FCA does absolutely nothing. It just reacts when something they should have prevented from happening finally happens as everyone predicted.
It took years to get rid of Hoodless and the next day Beaufort crops up and carries on. Until they make senior employees of the FCA personally accountable there won’t be any real regulation or preemptive protection for retail investors. The current structure is to do nothing and let all the regulated firms pick up the bill via the FSCS.
Accounts for the holding co for those interested
Under 27/6/17
https://beta.companieshouse.gov.uk/company/0360468...
Edited by Deesee on Wednesday 13th June 07:11
ringram said:
Total bulls
t as usual. The winding up costs should be bourne by shareholders, directors and the FSCS.
Liquidate all directors assets IMO. Houses, cars, pensions etc.
Very true. And the FSCS members should also be able to veto firms from being eligible based on industry knowledge. It’s just never a surprise as to which firms end up going pop. t as usual. The winding up costs should be bourne by shareholders, directors and the FSCS.Liquidate all directors assets IMO. Houses, cars, pensions etc.
However, Beaufort was in the business of selling worthless junk to desperate old people and much of the losses will be stemming from the unwinding of ‘investments’ that were designed to generate enormous revenues for all the corporate parties involved from the capital raised from the mug punters.
But the most important question to ask, that is never asked is just what is wrong with the brains of Britain’s pensioners that they have spent a lifetime accumulating wealth and wisdom and then so many of them just hurl their money at bucket shops and such clearly dodgy investments. I can only assume that in this case, as per usual, it’s mostly accidental wealth via inheritance money from deceased estates and the punters are desperate for returns to fund a lifestyle beyond their means.
Edited by DonkeyApple on Wednesday 13th June 08:55
DonkeyApple said:
Very true. And the FSCS members should also be able to veto firms from being eligible based on industry knowledge. It’s just never a surprise as to which firms end up going pop.
However, Beaufort was in the business of selling worthless junk to desperate old people and much of the losses will be stemming from the unwinding of ‘investments’ that were designed to generate enormous revenues for all the corporate parties involved from the capital raised from the mug punters.
But the most important question to ask, that is never asked is just what is wrong with the brains of Britain’s pensioners that they have spent a lifetime accumulating wealth and wisdom and then so many of them just hurl their money at bucket shops and such clearly dodgy investments. I can only assume that in this case, as per usual, it’s mostly accidental wealth via inheritance money from deceased estates and the punters are desperate for returns to fund a lifestyle beyond their means.
Thanks for these comments DonkeyApple. I'd assumed these bucket shop shark-like spivvy brokers had been cleaned up since my experiences in the mid-2000s - evidently not! My recollection of dealings with the likes of C(Sh)ity Equities, Charles Street "Securities", Hoodwink Brennan, IWCapital, The Ideas Factory..... is one of persistent cold-calling until the customer caved in and agreed to buy something. Their style was always the same, even if they varied in the socio-economic demographic they targetted. Indeed, there seemed to a merry-go-round of salesmen moving from one broker to the next. However, Beaufort was in the business of selling worthless junk to desperate old people and much of the losses will be stemming from the unwinding of ‘investments’ that were designed to generate enormous revenues for all the corporate parties involved from the capital raised from the mug punters.
But the most important question to ask, that is never asked is just what is wrong with the brains of Britain’s pensioners that they have spent a lifetime accumulating wealth and wisdom and then so many of them just hurl their money at bucket shops and such clearly dodgy investments. I can only assume that in this case, as per usual, it’s mostly accidental wealth via inheritance money from deceased estates and the punters are desperate for returns to fund a lifestyle beyond their means.
Edited by DonkeyApple on Wednesday 13th June 08:55
CSS took the biscuit in my view, with 100 page glossy prospectuses for worthless unquoted Israeli companies (+ a few AIM-listeds). Typically they trousered 25-30% of the funds raised for 'marketing commissions'. Then even more when the business inevitably hit the rocks a year later and came back for more. What was astounding was the number of 'up market' clients they had/have - the share registers of most of their investee companies had a good sprinkling of Dr's, Prof's, Sirs, Viscounts..... OK many of these were just playing with pin money (by their standards) and the EIS tax breaks would have been helpful but I'm surprised these guys didn't have tax advisers etc to warn them off.
One aspect of the Beaufort fiasco that puzzles me is in my limited experience investors in private companies always received share certificates from the registrar. So why the huge (£50m?) cost to the administrators in reconciling investors to investments?
On the broader question, I'm unclear if Beaufort was just a one-off outlier or is there really a non-trivial risk to holdings in nominee accounts of mainstream brokers. It's pertinent for me as I was planning to consolidate 5 DC pension pots later this year into a single SIPP at around the LTA level (probably, but not definitely, James Hay/Charles Stanley) but am inclined to keep things separate until there's greater clarity.
All those firms were cleared up but all the people remained and you can guess which new firm many of them ended up at? 
I don’t think Beaufort were really doing much in the way of bluechip investment portfolios but were mostly focussed on selling Gary’s bamboo farm for 50X it’s worth along with all the usual AIM ste. The register of people attached to that firm was just old hand shysters and the usual army of scrotey little kids who failed uni or any form of education but were desperate to ponce around the perefiphies of the City sporting an enormous watch and telling anyone who’d listen that they were a broker.
Personally, I wouldn’t allow any AIM related firm anywhere near the FSCS.
As for administrators, I had dealings when Sky Capital and Exchelon were being wound up. It was an eye opener to say the least and I am not surprised that there are growing calls for the big 4 to be broken up.
I don’t think Beaufort were really doing much in the way of bluechip investment portfolios but were mostly focussed on selling Gary’s bamboo farm for 50X it’s worth along with all the usual AIM s
te. The register of people attached to that firm was just old hand shysters and the usual army of scrotey little kids who failed uni or any form of education but were desperate to ponce around the perefiphies of the City sporting an enormous watch and telling anyone who’d listen that they were a broker. Personally, I wouldn’t allow any AIM related firm anywhere near the FSCS.
As for administrators, I had dealings when Sky Capital and Exchelon were being wound up. It was an eye opener to say the least and I am not surprised that there are growing calls for the big 4 to be broken up.
https://www.fca.org.uk/news/news-stories/informati...
How do PWC justify £25M per year in "winding up costs"?
How do PWC justify £25M per year in "winding up costs"?
WindyCommon said:
I was shocked to see initial reports that holders of assets > £150k could see “haircuts” as a result of insolvency fees. I was surprised because:
1. Huge regulatory pressure has been placed on the separation of client and corporate assets during the last decade
2. Similarly onerous attention has been paid to regulatory capital requirements for businesses holding client assets
My own experience - as a CF1 director of a leading fund management business - was that the levels of safeguards in place to protect investors were beyond belt and braces.
So, I assume that either the regulatory requirements were not being met (eg. the required regulatory capital was not in place) or some form of yet-to-be-reported fraud/criminality has occurred. I find it inconceivable that clients with assets in regulated mutual funds have assets at risk.
I am watching the story closely and am interested to hear views from other PH’ers with relevant exposure and/or knowledge.
Really???? Bank of New York was fined £126m in 2015 by the FCA for abuses of client money rules; without anyone loosing money - banks don't come much bigger. 1. Huge regulatory pressure has been placed on the separation of client and corporate assets during the last decade
2. Similarly onerous attention has been paid to regulatory capital requirements for businesses holding client assets
My own experience - as a CF1 director of a leading fund management business - was that the levels of safeguards in place to protect investors were beyond belt and braces.
So, I assume that either the regulatory requirements were not being met (eg. the required regulatory capital was not in place) or some form of yet-to-be-reported fraud/criminality has occurred. I find it inconceivable that clients with assets in regulated mutual funds have assets at risk.
I am watching the story closely and am interested to hear views from other PH’ers with relevant exposure and/or knowledge.
Edited by WindyCommon on Tuesday 12th June 14:24
As for regulatory capital, 30, 40 times leverage. Once the crap has been refinanced and haircut to death; it shouldn't be such a surprise there's now't left.
Ringfencing is in it infancy, there are going to be plenty of other interesting side effects from this. Cost of banking products will sky rocket over time as retail funding prolongation is stripped from IBs and return on deposits will plummet as access to IB products are removed. The likelihood is such events will continue with people out of pocket as investors chase high returns in the shadow banking sector.
55palfers said:
https://www.fca.org.uk/news/news-stories/informati...
How do PWC justify £25M per year in "winding up costs"?
The FSCS is basically a fund that the big 4 take formal turns to tap into. How do PWC justify £25M per year in "winding up costs"?
Interesting re-writing of history by the FCA to cover their manifest failing to regulate a known s
thouse entity: ‘Why did the FCA appoint an administrator?
The FCA had concerns about BSL’s discretionary fund management business and BACL’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.’
So the action from the DoJ was just coincidental.
The official band of the FCA lunch society has never been so busy.
ringram said:
Total bullst as usual. The winding up costs should be bourne by shareholders, directors and the FSCS.
Liquidate all directors assets IMO. Houses, cars, pensions etc.
I have to disagree here. Limited liability companies and structures exist for really good reasons - unless the directors can be shown to have taken funds out while the business was insolvent or have explicitly given personal guarantees their assets should remain untouched.t as usual. The winding up costs should be bourne by shareholders, directors and the FSCS.Liquidate all directors assets IMO. Houses, cars, pensions etc.
FSCS is a better idea and it sounds like the sort of thing it’s designed for.
Jon39 said:
NickCQ said:
Wind-up costs. If they are not paid the outcome for investors will be much worse.
We might be at crossed purposes, Nick.
I think you must be referring to the direct share holders and investors in a failed business.
What has come to light with the Beaufort failure, seems to involve customers who have invested in funds, ISAs and Sips etc.
If I have understood correctly, the customers savings are being used to pay creditors.
Some customers are expecting to lose 40% of their savings.
There he been comment about a little known law change involving ring- fencing, in I think 2011.
That I can get on board with. If it turns out that client funds have genuinely been subordinated to more junior claims (bank debt, working capital, employees, HMRC etc) then I agree this is a real scandal.
NickCQ said:
FSCS is a better idea and it sounds like the sort of thing it’s designed for.
It’s worth asking if the fees have gone up because there is now a big fat pot of other people’s money to be merrily tapped into though. That’s the problem with other people’s money, bills do tend to expand to utilise it.
DonkeyApple said:
NickCQ said:
FSCS is a better idea and it sounds like the sort of thing it’s designed for.
It’s worth asking if the fees have gone up because there is now a big fat pot of other people’s money to be merrily tapped into though. That’s the problem with other people’s money, bills do tend to expand to utilise it.
When investors invest in ISAs (individual shares), those shareholdings are of course held in nominee names.
Would that money now be at risk following whatever the law change was, and if so, what is the significance of the £150,000 figure previously mentioned?
DonkeyApple said:
It’s worth asking if the fees have gone up because there is now a big fat pot of other people’s money to be merrily tapped into though.
That’s the problem with other people’s money, bills do tend to expand to utilise it.
As an ex restructuring banker I know the dynamic you mean.That’s the problem with other people’s money, bills do tend to expand to utilise it.
An enterprising French CIRI official once decided that the way to keep advisor costs under control was to limit the amount paid senior to the secured creditors to 75% of invoiced fees. The remaining 25% ranked with the unsecured.
The next French mandate we got... we grossed up the fees
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