The FSCS’s investigation into compensation to Merchant Capital investors came about because of a sustained campaign by a Newcastle-based IFA.
In October, the FSCS announced it would be looking into potential compensation payable to Merchant Capital investors in respect of administration and custody charges. Ian Lowes, managing director of Lowes Financial Management, said he had been striving for more than two years to get this taken up by the FSCS.
He said: “We are disappointed that it has taken this long for what we always believed to be a relatively straightforward matter to get to this stage and at an increased cost to ourselves and the FSCS. Where a regulated entity ceases to trade and investors are facing potential losses as a result, the FSCS should be obliged to step in at an early stage.”
Mr Lowes said that a significant catalyst in the Merchant Capital business problems was Pritchard Stockbroker going into special administration in March 2012.
Two of Pritchard’s directors were fined and banned by the FCA in October 2014 for “serious failings in relation to the protection of client money”. A public censure was also published against Pritchard itself, with the FCA saying it would have fined the company £4.9m were it not for the company’s financial difficulties.
However, Mr Lowes said: “Investors have a right to expect a regulated entity or its successors to be able to honour their commitments, and to be protected when this is not the case.”
He added: “We continue to be in dialogue with the FSCS and hope the matter will be completely concluded before the end of the year, with investors receiving a pro-active refund of the charges incurred and imposed on them following the collapse of Merchant Capital.”
In October, the FSCS said it had received claims against Merchant Capital in relation to charges deducted from maturity proceeds of certain structured investments by Reyker Securities.
A statement from the FSCS said: “We expect to be in a position to publish full information on our website by the end of November about what affected customers need to do to claim from FSCS.”
The FSCS declared Merchant Capital Ltd in default in April 2014 after it was placed in creditors’ voluntary liquidation in 2013.
Right to Reply
In a letter to investors, Reyker Securities said: “Following the collapse of Merchant Capital Ltd shortly after the regulatory authority the FCA withdrew permissions for it to trade, it was necessary for Reyker to implement charges for the custody, administration and management services that we provide in respect of structured product plans that were either promoted or managed by Merchant.
“Reyker has never had this contractual responsibility to manage the plans, although we have fulfilled this role out of goodwill to clients and in order to protect the investments and income.”
A spokesman for the FSCS said: “Evidence submitted by Mr Lowes on behalf of his clients led to our recent announcement confirming that FSCS could deal with these claims.”