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Barclays Stockbrokers concentrates counterparty risk

by Emma Dunkley on Oct 16, 2012 at 13:22

Barclays Stockbrokers concentrates counterparty risk

Barclays Stockbrokers and Barclays Sharedealing are transferring client assets to Barclays Bank, as part of a move to simplify the firm’s legal structure.

The transfer, which clients were made aware of earlier this year, will become effective from 19 November and will mean investors will no longer have their money held in a trust structure across a range of counterparties, but will instead see their money held on deposit.

Under the Stockbrokers and Sharedealing structure, client money was split across five counterparty banks, one of which could be Barclays, diversifying counterparty risk.

This meant one fifth of money in stockbroking accounts could be held with Barclays, making customers more likely to be eligible for the maximum £85,000 they can claim from the Financial Services Compensation Scheme, should Barclays run into trouble.

Conversely, detractors of this structure point to the lack of clarity and transparency over where clients’ money is being held, with the counterparties being actively managed.

As the money will transfer to Barclays Bank on deposit, it will not be subject to the Financial Services Authority’s Client Money rules and will cease to be held in trust.

As a result, if Barclays Bank failed, money held on deposit would be used to meet the bank’s debts, so customers become unsecured creditors of the bank.

Although clients can still claim up to £85,000 under the FSCS, it could mean their money will be concentrated with Barclays under this structure, and mean they may exceed this threshold and not be able to claim back all their money.

A spokesperson for Barclays said: 'This move will simplify and streamline the way we do business and will provide clients with complete transparency about where their cash is held, enabling them to take control and to make the most appropriate investment choices for their personal circumstances.' 

However, although the bank is moving to be named under one banner – Barclays – the Stockbroker label remains in tact for the time being.

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