The chief executive of the Financial Services Compensation Scheme has said criticism of administrator PwC's bill for recovering assets from the collapsed Beaufort Securities was not necessarily justified.
Mark Neale said Beaufort was a "major failure" and the FSCS knows from its role in the process there is "significant" work which needs to be carried out by the administrator PwC.
PwC faced criticism from Beaufort creditors for proposing a bill for the work of around £100m, a charge which it admitted would have to be met by taking money from the accounts of investors who had money with the discretionary fund manager when it collapsed..
After coming under fire, PwC has agreed to carry out the administration in two years, rather than the four it had originally planned for, which has pushed down the costs of the process from £100m to £55m, although this will still ultimately be paid by Beaufort's clients once the failed company's other assets are exhausted.
The decision came after PwC held a "wide-ranging discussion" with the creditors' committee, of which the FSCS is a member as the largest prospective creditor, the Big Four accountancy firm said.
But Mr Neale defended the insolvency process.
"There has been some public criticism that the costs of the administration should be visited on the firm’s clients at all. After all, the cash and assets were ring-fenced.
"This is not, I think, justified because it is only the administration costs involved in the return of the assets which fall to the firm’s clients.
"As we know from our own engagement with the process, there is significant work involved in identifying the cash and assets and verifying clients’ positions."
The FCA placed Beaufort Securities into insolvency earlier this year following an assessment of the discretionary fund manager's financial position.
At the time the FCA said: "The FCA also considers it necessary for insolvency practitioners to take over the running of the firms in order to protect assets from dissipation and protect the customers of both firms."
Beaufort Securities was declared in default by the FSCS in April.
Mr Neale acknowledged that the FSCS does accept a responsibility to ensure administration costs are "properly and reasonably incurred and that it is only the costs of returning cash and assets which fall to the firm’s clients in this way."
Mr Neale said that through its position on the creditors' committee, the FSCS uses its representation in these cases to press for the appointment of an independent fees assessor to advise the committee.
With regards to how the administration costs are distributed among the creditors, Mr Neale said there were upsides and downsides however this was done.
He said: "The more equally distributed the costs, the higher FSCS’ compensation bill is likely to be. The more the costs are allocated on a proportionate basis – relative to the size of clients’ cash or asset holdings – the bigger share of the cost is likely to be borne by wealthy clients with cash and assets in excess of our current £50,000 limit.
"From FSCS’ perspective, we judge that it would not meet our duties to consumers and levy payers arbitrarily to back an approach which either maximised or minimised our compensation bill."
Instead, he said, the FSCS bases its decision on the ease and speed of alternative approaches and their fairness for clients.
damian.fantato@ft.com
