FSA unable to sell WorldSpreads, will return cash to clients.
The FSA will formally announce Monday morning that it has placed WorldSpreads in its Special Administration Regime (or “SAR”). After a weekend spent going through WorldSpreads records and accounts, and the unwillingness of any other firm to buy WorldSpreads, the FSA and special advisor KPMG decided to wind down WorldSpreads’ operations, and return as much cash as possible to clients.
As we reported earlier today, sources including the Financial Times report that as much as £12 million in client money is missing.
This is the third use of SAR, introduced in early 2011, under which the FSA has power to decide what to do with both the company and client assets in cases such as these. The other two uses were just last week with Pritchard Stockbrokers Ltd., and back in October with the more-recognizable case of MF Global. The SAR powers for the FSA were introduced in response to weaknesses revealed in the UK’s insolvency rules and process following the collapse of Lehman Brothers back in 2008.
We understand that there were attempts made to get one of WorldSpreads healthy competitors, including IG Group and London Capital Group, to take over the company with the FSA’s backing in a pre-packaged administration. However we also understand that these talks did not get very far, mainly due to the (understandable) reluctance of other firms to get involved in a sticky situation. As well, there was deemed to be not much upside in an acquisition, as many of WorldSpread’s 5,000+ clients also have accounts at these other firms. Why pay to buy what you already have?
For missing client funds, the FSA does have a Financial Services Compensation Scheme, but it covers just first £50,000 for each account. Clients which may end up owed larger sums may not get all their money back. While the £50,000 limit will likely cover any shortfall for most retail clients of WorldSpreads, larger retail accounts and certain other spreadbetting firms (which typically have accounts with each other, for hedging and other purposes) dealing with larger sums may not be so lucky.
This story will not likely end here. No charges of wrongdoing have been laid yet, but it is hard to imagine that something won’t transpire in the coming days and weeks. Stay tuned….
The full text of the FSA announcement, while not yet on its website, is as follows:
18 March 2012
WorldSpreads Limited enters Special Administration Regime
The Financial Services Authority (FSA) confirms that WorldSpreads Limited (WorldSpreads), a spreadbetting company, has entered the Special Administration Regime (SAR) on 18 March 2012. Upon the application of the directors of WorldSpreads, the High Court has appointed Jane Moriarty and Samantha Bewick of KPMG LLP as joint special administrators.
The administration of WorldSpreads follows the discovery of accounting irregularities which the company became aware of during the course of Friday 16 March 2012. Following this it quickly became apparent that the company was unable to continue in business and the directors and their advisors concluded that the best course of action, in order to mitigate losses for clients, would be to place the company into special administration.
The joint special administrators will review the client cash holdings positions and will return as much cash as possible directly to each client as soon as practicable. However, clients should be aware that any shortfall in the client money accounts will impact the amount of money that can be returned.
Depending on individual circumstances customers may have access to the Financial Services Compensation Scheme (FSCS) should there be any losses. Customers should contact the special administrators to understand more about implications for them personally.
Customers of WorldSpreads should contact the joint special administrators for more information on 020 3284 8829.
NOTES FOR EDITORS
1. WorldSpreads Limited is a wholly owned subsidiary of WorldSpreads plc, a company incorporated in Dublin, Ireland and listed on Alternative Investment Market and on the Irish Stock Market, ESM.
2. The Special Administration Regime came into effect in February 2011 and sets three objectives for a special administrator:
a. to ensure the return of client assets as soon as practicable;
b. to ensure timely engagement with market infrastructure bodies and the authorities; and
c. either to rescue the firm as a going concern or wind it up in the best interests of the creditors.
In an ordinary corporate administration proceeding only the third objective would apply.
3. This is the third time the SAR has been initiated.
4. The FSA can direct the special administrator to prioritise one or more of these objectives if it considers that to be necessary on UK financial stability grounds but before it does so it must consult HM Treasury and the Bank of England.
5. The special administrator can direct any suppliers to continue to provide key services to the entity in the SAR, to facilitate an orderly resolution.
6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
Press: Chris Hamilton 07870 257276/0207 066 3232
Outside office hours 07795 351 956
Public: FSA Consumer Helpline 0845 606 1234 (call rates may vary)