If you have your capital in the UK ... beware !!!!

Discussion in 'Trading' started by trillenium, Mar 7, 2012.

  1. Jonathan Ford – Financial Times (link)

    For a country that hosts one of the world’s top financial centres, Britain is acquiring a worryingly poor reputation for protecting client money when investment firms fail.

    British clients have already had their fingers burned in one big case – that of Lehman Brothers, where they recovered much less than their US counterparts. Now much the same seems to be happening at MF Global, the US brokerage that collapsed last autumn.

    While American clients have recouped nearly three-quarters of their cash, the British have at best got back about a quarter. Many have received nothing at all.

    Bankruptcies are always messy for creditors, but the position for investment clients should be clear. UK regulations require client money to be segregated from the brokers’ capital and held in separate bank accounts. When brokers fail it should be a simple matter to sweep each account and return the proceeds to its holder. While not every client will be repaid equally, or even at all, at least they know swiftly where they stand.

    Unfortunately, the law has intervened to muddy the waters. Following legal challenges relating to the Lehman bankruptcy, the UK’s supreme court has swept aside this system, replacing it with one that treats clients not individually but as a class. A loss falling on a single client will therefore now be spread across the whole.

    True, this has a narrow legal logic. Given that the law provides that all clients should be segregated, the idea is that they should all be protected equally.

    But it has unwelcome consequences. By loosening the definition of a client and entrenching the mutualisation of loss, it slows the repayment process, and makes the level of recoveries harder to gauge. This is especially the case as it exposes UK clients to claims from those who do not necessarily have segregated UK assets to claim against. In the case of MF Global, for instance, the UK clients could be substantially diluted by a claim from the company’s US affiliate.

    Britain’s system for resolving bankruptcies cannot make good prior regulatory failures. In MF’s case, the system of segregating client monies may have been inadequately enforced, exposing clients to risk of loss. But the supreme court’s ruling does not fix this; it simply piles uncertainty on top. The Financial Services Authority must now get a grip, and reassert the principle that recoveries in bankruptcy should be based on properly enforced segregation. Otherwise, the UK’s poor reputation risks becoming entrenched.
  2. http://www.ft.com/cms/s/47144f12-6e...://mfgukclients.org/?page_id=77#axzz1pFRM4Tvv

    They published all names of creditors with private names etc.

    Private clients of MF Global reacted angrily on Wednesday to what several said was a severe breach of privacy, after KPMG, administrator to the UK arm of the failed futures broker, published their identities, home addresses and the sums owed to them.

    The list, which includes corporate and institutional clients from the UK’s Financial Services Authority to the London Stock Exchange as well as numerous banks and trading entities, includes hundreds of private individuals who are owed sums as small as £3,200 and as large as £500,000 apiece. Other creditors include JPMorgan, which is owed £100m.

    The revelation comes as the laws protecting UK customers of failed investment firms are coming under scrutiny. While MF Global’s US clients have recouped nearly three-quarters of their cash, their UK counterparts have received only a quarter. Customers’ legal status has been further complicated by a UK court ruling on Lehman Brothers that treats customers suffering losses from a failed broker not individually but as a class.

    Under UK insolvency law, directors must publish a statement of affairs but can apply to a court for parts of the statement to be redacted if it prejudices the conduct of the administration, as happened with Lehman.

    “After legal advice, we considered that there were no substantive grounds to apply for a redaction and the court would be likely to reject any such application,” said Richard Heis, joint special administrator at KPMG.

    James Nicholls, an insolvency lawyer acting for a group of creditors to the UK administration, said: “In a case like this of such sensitivity they [KPMG] could and should, in my opinion, have asked the court for permission to redact the personal identities. It is incredible that we now know the names and addresses of rich and vulnerable individuals around the whole world.”

    He added that the breach would be particularly galling for clients based in parts of the world where confidentiality is sacrosanct. “Any US citizens will be going berserk I would think,” he said.

    The list also includes names and addresses of individuals based in jurisdictions such as Switzerland and Italy where authorities have announced efforts to crack down on tax avoidance schemes.
  3. It's really odd to be releasing names of individuals like that. Definitely would get the average US citizen pissed.

    Regarding the reason most customers in the UK lose whenever US firms fail is probably because of higher legal fees in London, particularly. Lawyers their probably want more than $700+ per hour and a team of 20 making half that, couple it with unfavorable exchange rates on overvalued British Pounds and the possibility of having to travel to the US across the pond it's no wonder these customers get the shaft.

    I mean, I recall the MF Global Bankruptcy Trustee Legal Team's at $20,000 per hour now, so if you mark that up in pounds you definitely get screwed for a long time because it is in the lawyers' interest to keep the judicial process going.
  4. Translation: We didn't want to pay our lawyers to redact the names prior to the release of sensitive, non-public information.