I just wanted to share this cautionary tail. Your segregated account is not ring fenced as you would assume if your broker was to collapse and you could end up loosing money. As has been the case in this example below if for example your broker i.e Interactive Brokers UK was to go under and have no money they can steal from your brokerage account to pay insolvency costs of PWC, EY etc 
. In other words every European who uses a UK broker risks loosing their assets, even though the assets are held in custody for them and segregated.
Be careful and make sure to spread your assets around in as many territories as is economically possible.
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Brokers and investment platforms have admitted they are powerless to prevent customer funds being tapped in the event of an insolvency, after a brokerage collapsed with “huge ramifications” for investors.
Some clients of Beaufort Securities, which was closed by Financial Conduct Authority in March, have been told they will have to foot the bill for costly insolvency proceedings being carried out by PwC, the professional services group.
The move prompted anger among private investors after they learnt that funds in ringfenced pensions and investment accounts could be raided if their broker were to fall into insolvency.
Brokers said the reminder underlines the importance of clients doing due diligence on providers and making sure companies were well capitalised before investing with them.
“From a corporate point of view, I don’t think this would ever happen to us,” said Richard Stone, chief executive at investment company The Share Centre. “But ultimately administrators will always need to be paid and the rules allow the insolvency administrators to levy their charges against the client money, resulting in a shortfall.”
Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “Our customer assets are held in a segregated account, so are separate from the business and cannot be accessed by our creditors.
“But there is a provision, which PwC is using, to state that if there are not enough assets in the business to cover administration fees then those can be recouped from client money.”
Rules introduced after the 2008 collapse of Lehman Brothers, known as the special administration regime, together with case law, have given investment companies more latitude to dip into client money to pay insolvency costs. The precedent has only been used a handful of times.
It means that most UK investors, whose assets are held in pooled nominee accounts via their broker, are on the hook if that company collapses and there are no other company funds available. The Financial Services Compensation Scheme (FSCS), which is funded by an industry levy, only covers assets of up to £50,000 per person, far lower than the size of many large pension and investment pots.
Lord Lee of Trafford, who has tabled several questions in the House of Lords on elements of Beaufort’s insolvency, said: “Every private investor that I’ve talked to or heard from about this had assumed that their assets with brokers were totally protected and ringfenced. “Investors are shocked to discover that this isn’t so, and that in similar circumstances to Beaufort, their holdings could be vulnerable.”
“Investors are shocked to discover that this isn’t so, and that in similar circumstances to Beaufort, their holdings could be vulnerable.”
Anthony Breton, a Beaufort customer, said: “I just always assumed my shares were safe because they were in a pooled nominee account. But PwC has been handed the keys to the cupboard. The ramifications for people’s accounts going forwards are huge.”
Beaufort specialised in raising money for small companies listing on the junior Aim stock exchange. It was put into administration in March just hours before it was charged by the US Department of Justice with alleged money laundering and securities fraud.
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PwC, the administrator, has said that Beaufort’s client assets are safe but that it could cost as much as £100m to identify and return assets worth £550m to customers. Because there are not enough funds left in the business, customers will have to pay out from their own pots, PwC said.
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. In other words every European who uses a UK broker risks loosing their assets, even though the assets are held in custody for them and segregated.Be careful and make sure to spread your assets around in as many territories as is economically possible.
Subscribe to read | Financial Times
----------------quote------------------
Brokers and investment platforms have admitted they are powerless to prevent customer funds being tapped in the event of an insolvency, after a brokerage collapsed with “huge ramifications” for investors.
Some clients of Beaufort Securities, which was closed by Financial Conduct Authority in March, have been told they will have to foot the bill for costly insolvency proceedings being carried out by PwC, the professional services group.
The move prompted anger among private investors after they learnt that funds in ringfenced pensions and investment accounts could be raided if their broker were to fall into insolvency.
Brokers said the reminder underlines the importance of clients doing due diligence on providers and making sure companies were well capitalised before investing with them.
“From a corporate point of view, I don’t think this would ever happen to us,” said Richard Stone, chief executive at investment company The Share Centre. “But ultimately administrators will always need to be paid and the rules allow the insolvency administrators to levy their charges against the client money, resulting in a shortfall.”
Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “Our customer assets are held in a segregated account, so are separate from the business and cannot be accessed by our creditors.
“But there is a provision, which PwC is using, to state that if there are not enough assets in the business to cover administration fees then those can be recouped from client money.”
Rules introduced after the 2008 collapse of Lehman Brothers, known as the special administration regime, together with case law, have given investment companies more latitude to dip into client money to pay insolvency costs. The precedent has only been used a handful of times.
It means that most UK investors, whose assets are held in pooled nominee accounts via their broker, are on the hook if that company collapses and there are no other company funds available. The Financial Services Compensation Scheme (FSCS), which is funded by an industry levy, only covers assets of up to £50,000 per person, far lower than the size of many large pension and investment pots.
Lord Lee of Trafford, who has tabled several questions in the House of Lords on elements of Beaufort’s insolvency, said: “Every private investor that I’ve talked to or heard from about this had assumed that their assets with brokers were totally protected and ringfenced. “Investors are shocked to discover that this isn’t so, and that in similar circumstances to Beaufort, their holdings could be vulnerable.”
“Investors are shocked to discover that this isn’t so, and that in similar circumstances to Beaufort, their holdings could be vulnerable.”
Anthony Breton, a Beaufort customer, said: “I just always assumed my shares were safe because they were in a pooled nominee account. But PwC has been handed the keys to the cupboard. The ramifications for people’s accounts going forwards are huge.”
Beaufort specialised in raising money for small companies listing on the junior Aim stock exchange. It was put into administration in March just hours before it was charged by the US Department of Justice with alleged money laundering and securities fraud.
Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email [email protected] to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found here.
Subscribe to read | Financial Times
PwC, the administrator, has said that Beaufort’s client assets are safe but that it could cost as much as £100m to identify and return assets worth £550m to customers. Because there are not enough funds left in the business, customers will have to pay out from their own pots, PwC said.
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. Malta is the last place you should keep assets. I just finished moving my brokerage assets from meDirect in Malta.
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