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FSCS could top-up MF Global investor payments

The Financial Services Compensation Scheme could be required to top-up compensation already paid to some investors in defunct global broker firm MF Global after a High Court decision.

In October 2012, MF Global special administrator KPMG applied to the High Court to allow compensation to be calculated from the date of the company’s liquidation under a ‘hindsight application’.

However, the court has decided that “the hindsight principle is not applicable to the determination of claims to client money for the purposes of a distribution” and compensation should therefore be calculated from 31 October 2011, the day MF Global went into administration.

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According to the FSCS, yesterday’s judgement (29 January) means some people could be due extra compensation. The body did not reveal if some investors may be subject to a clawback.

Mark Lawford, part of the business finance and restructuring team in law firm Weil, said: “The judge held that open positions are to be valued as at the primary pooling event by reference to the amount which MF Global would have been liable to pay to the client if the open position had been liquidated... on 31 October 2011. This is helpful clarification.”

Predicted compensation costs for MF Global investors added £27m to the £60m interim FSCS levy for investment indermediaries last year.

In November of last year, the High Court controversially ruled that the appointment of administrators to the floundering MF Global’s UK operations did not constitute a ‘default’ under its loan agreements.