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View the article online at http://citywire.co.uk/wealth-manager/article/a638949

Pritchard and Worldspread failings leave £25m FSCS hole

by Annabelle Williams on Nov 30, 2012 at 13:36

Pritchard and Worldspread failings leave £25m FSCS hole

Investment firms should expect to face an interim Financial Services Compensation Scheme (FSCS) levy next year as the body announced it is projecting a shortfall of £25 million in the investment intermediation sub-class.

The supplementary levy is due to higher than expected costs over the failure of Pritchard Stockbrokers, which went into administration earlier this year, and spread betting company Worldspread.  

The FSCS expects to pay out £16 million in compensation over Pritchards, and a further £17 million for Worldspreads.

Fund managers should not expect to cross-subsidy the investment intermediation sub-class class, the FSCS said, although the final decision on the interim levy will not be made until later in the final year.

Investment intermediaries have paid out £66 million to the FSCS so far in 2012, leaving £34 million in ‘headroom’ for further compensation costs before fund managers will be asked to contribute.

6 comments so far. Why not have your say?

PeterCC

Dec 03, 2012 at 08:38

Are you sure about the £16m figure for Pritchard Stockbrokers?

The reports published by Mazars make it quite clear that the shortfall in client funds is around £3.5m.

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Annabelle Williams

Dec 03, 2012 at 09:14

Hi PeterCC,

On page eight of the FSCS Half Year Review, under the section regarding the failure of Pritchard Stockbrokers, it states:

'FSCS started paying compensation to eligible claimants in October 2012. We expect to pay out £16 million in the 2012/13 levy year which had not been levied for due to the recent nature of the default.'

Regards,

Annabelle

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PeterCC

Dec 03, 2012 at 09:46

Hi Annabelle

Thanks for the quick reply!

I just had a read of that and it does appear to read that they are expecting to pay out £16m. I really don't understand as to why that is though. From memory, Pritchard only held about £23m of client cash in total, and the latest update from Mazars states a shortfall of about £3.5m, which includes their own charges which are pretty sizeable.

Perhaps the FSCS pays out to the clients, then claims back all they can from the company? Although, I always believed they only pay out the shortfall left behind after all available cash has been paid out.

Anyway, thanks again!

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Hoody via mobile

Dec 05, 2012 at 09:51

Whilst the shortfall was around £2.8m, Mazars have only paid out to clients 50p in the pound and, in the short term, the balance will be made up by FSCS. When Mazars have completed their work, and the other funds realised, FSCS will be reimbursed, and I'm sure this will be reflected in a revised levy.

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PeterCC

Dec 05, 2012 at 10:34

I see, thanks Hoody.

Reading Mazars latest report again they state that they have secured £23.7m of client cash, against claims of £26.5m.

They have so far made payments of £9.3m to clients, so I guess the £16m FSCS expected payment is a very worst case scenario. I would expect it to be nearer £4-5m at the end of it all.

You need to budget for the cost of the Special Administration (circa £2m maybe?) and then add in any assets the company had - particularly this £500k property investment which the clients very kindly paid for!

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Hoody via mobile

Dec 05, 2012 at 11:06

Yes. The clients have been inconvenienced enough and shouldn't have to wait for all the details to wash through before before getting back their monies, and further delays would lead to further claims about lost investment opportunities.

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