Financial Services Compensation Scheme  

FSCS recoups millions from defunct DFM

FSCS recoups millions from defunct DFM

The UK’s lifeboat scheme has recouped millions of pounds from failed discretionary fund manager Strand Capital as administrators continue to wind down the company.

A progress report, published on Companies House today (June 24), showed the DFM’s administrators Smith and Williamson had distributed £9.4m of client monies and that most of the funds had been directed to the Financial Services Compensation Scheme.

The report showed the administrators had recouped £12.5m of client money as at May 16 and had distributed about 75 per cent of it, with £9.4m being paid out.

It stated that as nearly all of Strand Capital’s clients had already received compensation through the FSCS, “most” of the payments were paid directly to the lifeboat scheme meaning millions of pounds had been returned to the scheme.

The FSCS had estimated in 2018 that it would pay about £6m in compensation to Strand's clients.

Smith and Williamson reported it was likely there would be a final distribution of client monies and it was anticipated this would be “in excess” of a further 5 per cent of the recouped funds.

The accounts showed the administrators believe nearly £500,000 is still owed to clients of Optima Worldwide Group, in relation to bond coupon interest.

Strand Capital went into administration in May 2017 following the breakdown of an internal management buyout, with 2,500 clients holding investments with the company.

There are negligence claims against the firm, which was declared in default by the FSCS in September 2017, that may relate to unsuitable advice to transfer money into a self-invested personal pension, the FSCS has previously stated.

As a DFM Strand Capital had advice permissions but the FSCS said it was also aware FCA authorised advisers may have recommended customers invest with Strand Capital or that they transfer their existing pensions into a Sipp.

Today’s accounts showed Smith and Williamson had recouped more than £8.5m of client money from Kent-based discretionary investment manager Gallium Fund Solutions with whom Strand Capital had links.

Gallium was one of the managers appointed by the Sipp providers used by Active Wealth UK, an advice firm now in liquidation following a suspension from the regulator relating to pension transfers.

What happened?

In 2016 Strand Capital's sole shareholder sought to sell its shares in the company, claiming it was no longer a "strategic fit" with its ongoing business plan, and a sale via a management buyout was explored as a result.

However, the breakdown of this intended management buyout led to key senior management, who held the relevant FCA regulated functions, leaving Strand Capital in March 2017. 

Coinciding with a subsequent breakdown of the relationship with the DFM's trading platform provider, an agreement with the Financial Conduct Authority was reached to cease carrying out regulated activity and Strand Capital ceased dealing with client monies and assets. 

The DFM's director subsequently placed the company into special administration.