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FSCS won’t rule out IFAs paying claims of US MF Global clients

The Financial Services Compensation Scheme has refused to rule out IFAs being hit with a compensation bill for US investors affected by the collapse of MF Global.

MF Global UK, the UK subsidiary of the failed investment brokerage, was placed into special administration in October. A list acquired by Money Marketing through a freedom of information request shows that MF Global UK is in the investment intermediation FSCS sub-class.

Recent reports have suggested broker-dealer MF Global used a legal loophole to place US business with its UK subsidiary. Through a process known as re-hypothecation, brokers can use collateral pledged against loans to back their own trades. There is no limit to the amount that can be repledged in the UK but it is capped in the US.

It is unclear whether this means UK advisers could end up covering the cost of compensation for US investors. One source close to the FSCS told Money Marketing “it is not inconceivable” this could be the case. The FSCS declined to comment.

MF Global UK administrator KPMG, which along with the FSCS has begun the claim process for over 10,000 MF Global UK customers, says it is too early to determine the extent of UK losses.

On whether MF Global channelled business through the UK subsidiary to circumvent US restrictions, a KPMG spokesman says: “We cannot comment on this type of speculation but any claims such as this and any credible allegations will be investigated.”

MF Global UK clients can claim either through KPMG or the FSCS but cannot be paid twice. Clients who claim through the FSCS will assign the rights to the FSCS, which will then have a claim on any recoveries.

New York-based MF Global collapsed on October 31 after a $6.3bn exposure to eurozone debt failed to pay off.

James Giddens, the trustee overseeing the company’s bankruptcy, estimates there could be up to £760m in missing funds.

A spokesman for Giddens says assets under the control of foreign bankruptcy trustees or administrators will be pursued vigorously. He adds: “Recovery may be more uncertain and may take more time.”

Yellowtail Financial Planning managing director Dennis Hall says: “If firms have been using rules here to guide business through the UK and the regulator has allowed that to happen, then heads should roll.”

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Comments

There are 18 comments at the moment, we would love to hear your opinion too.

  1. Anyone staying in this industry needs their head examining. We are just an easy target for money, when did the UK cease to be a democracy?

  2. Is this yet another case of the Baker paying compensation due to the bankrupt Butchers selling of bad meat.

    When are we going to collectively make a stand and tell the FSCS to pursue the guilty and not the gullible, because that is what we are if we do nothing.

  3. What the bloody hell has this got to do with me or any other ‘normal’ IFA, or the activities that we undertake for our clients?

    That’s right, absolutely nothing!

    It really is time that the idiots at the FSA and FSCS understood the nature of the hugely diverse industry that they charged with, but utterly failing properly to, regulate.

    Question is, how the hell do you get this through to them?

  4. This is getting stupid IFA’s should not be held liable for what appears once again to be the failing of the so called regulator not doing its job. Surely if the FSA is at fault this time Sants and cronies should be made to pay

  5. Surely somone who has never been UK (or EU) Resident/Domicilied would not be considered an Eligible Complainant?

    i.e. As the business was done outside of the EU – no UK protection would apply???

    The issue of FSCS Sub classs is irrelevant if the individual isn’t eligible for protection – but one question to ask the FSA – how do they define who is a provider and who is an adviser (FSA Register still shows then as ‘Advising on….’)?

  6. This is definitely a case of the inmates running the asylum. Of course it wont affect employees of the FSCS or FSA cos they will still get their inflated salaries and add ons untill all IFA, are dead and gone(not by natural wastage either) but by the toxic administration of the two organisations above.

    I am still not sure why someone cannot get hold of the short and curlies of these mobs and sort them.

  7. Perhaps the only thing that we can do “collectively” to make some sort of effort to combat this continual bombardment from those who are supposed to regulate this industry is for each and every IFA to contact their MP. If MP’s from all over the country are overwhelmed by these complaints/enquiries then there may be some chance that the govt may take notice. It will at least highlight what our “lords and masters” are doing or perhaps not doing in a wider circle.

  8. waste of time MPs aren’t interested! The minister who could do something (McHoban) is obviously frightened of the FSA!

  9. Nick makes a good point. If they’re not making fortunes out of us from study texts and examinations, then we are forced to pay compenstaion for events happening on the other side of the world. How are they going to balance the books in 2013 when the adviser numbers drop off dramatically??

  10. This just gets crazier and crazier. The problem that we IFA’s have is that no-one in Government gives a toss about us and allows the FSA and FSCS to do what they want.

  11. For IFA’s who are “sole Traders” or Partnerships,, go Limited fast or get out as you will be betting your house and all your worth as this may be the tip of the iceberg if the Euro goes wrong.

  12. Absolute disgrace!!!

    With the FSA coming out that they are part to blame for RBS due to the light (non existent) regulation of banks….will FSCS be imposing levy on them!!!!…..don’t think so!!!

    I wasn’t even advising on investments at the time of these scandals however as Renault I am being penalised!! Shocking!!! Where is our representation in all this to fight on our behalf?

    If RDR don’t drive you out of this industry…FSCS will!!!

  13. This is so wrong – why should my fees be based on a US firm going bust. WRONG WRONG WRONG

  14. It would be wrong if it were true, but as yet we simply don’t know. It shouldnt be true and frankly if IFAs are chased for this, we should simply refuse to cough up. This is merely more reason for better and tougher regulation of the investment banking sector who are screwing everyone. A few more like this and I can see the final scene of Fight Club becoming a reality.

  15. There should come a point, and this may be it, when we all say no! Our refusal to pay would hopefully lead to a debate and fairer resolution.

    Sadly, given the nature of IFAs overall, I cannot see this happening and the “doormats” amongst our numbers will have only themselves to blame for their ultimate extinction – and mine!

  16. This article is just scaremongering, so the FSCS should have issued a more sensible response to it.

    MFG UK’s customer is the bankrupt US firm, MFG Inc, not the individual US customers. MFG Inc is not an eligible claimant under the FSCS – see the FSA Handbook, COMP 4.2.2(2) – so no chance that FSCS will have to pay them out.

  17. MF Global is a broker dealer, If IFA used them directly they may be responsible in part. They might have chosen to use, say, Stocktrade instead. But more likely the OEICs chose them, so that shouldn’t affect IFAs in a wider general levy.
    But after the Herbert Smith letter on Keydata, there is no need for wider-industry levies to bail out providers anymore – FSCS just go direct to the unfortunates who sold the plans for full compensation. There is some £60m of compensation in Keydata already to be paid plus another £140m to follow from FSCS, plus the Arch Cru numbers.

  18. Easy to whinge and claim we can;t do anything about it.

    WRONG

    Of course we can.

    We have to ram it home to any party in a position to make a difference – MPs, direct complaint to FSA, to Treasury, media, press.

    We have to stand together and shout.
    This particular story is almost laughable. The FSA needs to be held to account for its actions and lack of action.

    So DO SOMETHING. Don;t just whinge about it.

    Ian Coley
    Partner
    Medical Investment Services

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