Companies  

FSCS pays out £830k in failed broker claims...so far

The Financial Services Compensation Scheme has paid out £830,000 in respect of almost 100 claims against failed London-based broker City Equities Limited, the scheme has confirmed.

City Equities was placed under special administration in October last year; the fifth order to have been made since the Investment Bank Special Administration Regulations came into force in February 2011.

The special administration application was made following previously unsuccessful attempts to recapitalise the London-based broker and small-cap equity dealer under the FCA’s capital adequacy rules.

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A six-month progress report by the joint special administrators UHY Hacker revealed that there has been a rapid increase in the number of complaints to the FSCS as the progress report revealed that in the six months to the 10 October 2014, it paid 16 claimants a total of £288,726.21.

The report said the FSCS’s records indicate that a further 1,317 claims are being processed, but this would include the 100 that have already been paid out.

The report said: “They [the FSCS] do therefore expect that there will be a substantial increase in the compensation paid by them.”

Last year, FTAdviser revealed that City Equities had seen its client assets fall from more than £20m to approximately £7m since 2012.

The six-month progress report revealed that City Equities has 469 clients with an estimated £7.5m of assets, mainly in stocks and shares, along with approximately £50,000 in cash balances.

The report added: “The special administrators have concentrated on winding up the remainder of the company’s affairs in the best interests of the creditors and the clients, whilst seeking to secure and protect the client monies position and client assets position whilst complying with a range of regulatory requirements.”

Previously when FTAdviser asked Bird and Bird, adviser to UHY Hacker, whether it was likely investors would receive their assets in full, the firm said it was “too early to say” but added: “Clearly we are working towards a goal of returning as many client funds as possible”.

It still remains unclear as to whether clients will get their total funds back.

However, A FSCS spokesperson said: “City Equities Limited was placed into the special administration regime on 11 October.

“The act of the court appointing a special administrator for a firm automatically puts it in default, meaning the court was satisfied that there weren’t enough client funds to cover the cost of compensation.”

FTAdviser revealed in September 2013 that City Equities could trigger a wave of compensation claims after a section 166 skilled persons report ordered by the regulator found that it needed an immediate cash injection of £1.1m to enable the firm to meet capital requirements for more than 12 months.

In its 2012 accounts, City Equities posted a loss of £1.48m for the year ending 30 November 2012, compared to a loss of £542,728 in the previous year.

City Equities is listed on the Financial Services Register as being authorised but in administration.

donia.o’loughlin@ft.com