What We Did
During the year FSCS has protected consumers across various sectors, raising their confidence in the financial services industry, as shown by the following case studies.
Alpha Insurance, a Danish company that insured thousands of UK taxi and minicab drivers, was declared bankrupt in Denmark on 8 May. As well as insuring taxi drivers through such brands as Protector and
Cover My Cab, Alpha provided a range of insurance policies to the UK retail and commercial market including solicitors’ professional indemnity insurance, motor insurance, gap insurance and latent defects insurance to insure customers from defects in new-build homes.
The failure posed a logistical challenge for FSCS. By working closely with the liquidator, the Danish Guarantee Fund, the Danish Financial Supervisory Authority (Danish FSA) and Right Choice Insurance Brokers, FSCS secured alternative insurance cover for thousands of eligible customers. On 28 September 2018 we signed off on a deal to replace 10,700 private motor insurance policies.
FSCS also liaised with Premia Solutions to replace 177,000 of Alpha’s Guaranteed Asset Protection (GAP) policies, with effect from 12 August, with the new insurer – a Lloyd’s of London syndicate. The transfer came after Alpha’s liquidator gave notice that these policies would be cancelled on 11 August. Affected
policyholders received a letter from Premia Solutions outlining the details of the transfer of their policies.
Where customers bought the Alpha cover on finance terms that required them to assign their rights to the providers, we set up arrangements with the two main providers, Close Brothers and Premium Credit, to arrange for the compensation payments to be applied directly towards paying back the loan.
Beaufort Securities Ltd and Beaufort Asset Clearing Services were placed in Special Administration by the High
Court following an application by the UK regulators in March 2018, soon after the US Department of Justice brought criminal charges against Beaufort Securities Ltd and a number of individuals for their alleged involvement in securities fraud and money laundering.
Around 17,000 retail clients and about 500 corporate clients in Beaufort Asset Clearing Services were affected. Almost all individual customers of Beaufort Asset Clearing Services will be protected in full by FSCS for the return of money and assets as a result of the firm entering administration.
The distribution plan, agreed by the High Court in July, allowed FSCS compensation to be paid directly to Beaufort to cover the relevant administration costs, reducing the cash flow demand on FSCS’s levy payers while also simplifying the process for Beaufort clients. The court welcomed FSCS’s participation in the plan.
FSCS will protect the vast majority of Beaufort’s 17,500 clients by compensating them for any shortfall arising from the costs of returning cash and assets. These costs do not need to be taken from client assets and client money. FSCS has arranged for these costs to be met directly with PwC, and the vast majority of individual Beaufort clients are not expected to suffer any loss. Just over 12,000 customers have so far had their portfolio returned whole without any deduction.
We are working closely with PwC and the creditors’ committee to ensure that the costs of the estate are kept as low as possible.
When the investment management firm Strand Capital Ltd was placed into Special Administration in May 2017, the Companies Court appointed Smith and Williamson and LA Business Recovery Ltd as the firm’s joint special administrators.
FSCS has already paid a number of Strand customers for claims connected with the return of client money to customers and is working with the joint special administrators to return the remaining client money.
During the summer of 2018, FSCS paid £5.9m to 1,405 Strand Capital Ltd customers in respect of their client cash balance, with payments made to their Self-Invested Personal Pension (SIPP) provider, the most recent being Liberty SIPP on 1 August. The payments relate to client money only and not to assets.
FSCS is still working on returning client money to some remaining customers and is likely to have a role in the return of customer assets.
FSCS wrote to those customers on 25 June to let them know their payment had been made. For many customers this payment represents just the first stage in returning property to them.
FSCS is currently working with the administrators on the return of assets to clients. We are also expecting to receive a distribution from the insolvent estate of Strand.
For clients whose losses exceeded the FSCS investment limit of £50,000, any recoveries received that are in excess of the compensation we have paid out will be passed on to claimants so that they are not worse off as a result of having first accepted FSCS compensation.
In early September FSCS stepped in to protect the 1,250 members of the London-based Dial-A-Cab Credit Union Ltd when it stopped trading and was unable to pay their customers’ deposits.
This failure was FSCS’s largest deposit failure since the financial crisis of 2008. FSCS paid more than £21m to Dial-A-Cab’s customers within seven days of the failure. A number with savings above the FSCS compensation limit of £85,000 were paid by FSCS and also contacted directly by the administrators. To date, one claim for a “temporary high balance” has been paid.