FSCS, Investments and Platform Nominee Accounts

TCA

I'm trying to get my head round how the FSCS works in relation to platform nominee accounts and what the chances of losing out are in the case of default if invested at over the £50k level.

Best Invest are my platform and they in turn use SEI (SEI Investments (Europe) Limited), who in turn use SEI Global Nominee Ltd.

I understand that if I have a cash balance in my investment account, then that is currently held by SEI in a UK client trust account with HSBC, therefore covered by the £85k limit under the FSCS. Fair enough. They do have the ability to deposit client cash outside the UK but we'll not go there.

My share investments are held by SEI Global Nominees but there are mentions of further sub-custodians and not receiving full entitlement (see below), which has just confused me more. I gather I'll get £50k of cover if the worst happens but I'm trying to get a handle on the chances of me losing out if I had substantially more invested with them. The fact that the nominee company doesn't trade would appear to suggest there's a slim chance of default but how much protection is this in reality? Here's a few excerpts from their lengthy terms and conditions.

"Bestinvest has entered into an agreement with SEI whereby Bestinvest has arranged for SEI to provide safe custody, administration and other associated services for Bestinvest clients. Bestinvest entered the agreement as your agent and so there is a direct relationship between you and SEI which is governed by the enclosed Custody Terms."

"SEI is SEI Investments (Europe) Limited incorporated in England and Wales under number 03765319. Its registered office is at Fourth Floor, Time & Life Building, 1 Bruton Street, London W1J 6TL. It is authorised and regulated by the Financial Conduct Authority under registration number 191713."

"All investments will be registered by SEI in the name of their nominee, SEI Global Nominees, which will have legal ownership of the investments and hold them for your benefit. The nominee is a company within the SEI group whose sole purpose is to be registered as the legal owner of the investments held for you and our other clients. As this nominee company does not trade, it is unlikely to become insolvent, which provides added protection to the investments held in your Account. Any share certificates or other documents evidencing legal ownership of investments will be held by SEI."

"SEI Global Nominee Ltd is used to assist in ensuring all client assets are segregated from the assets of SEI. SEI Global Nominee Ltd is a Nominee Company which is used by SEI as it has no material liabilities and is a separate entity from SEI. Therefore your assets would not be available to an administrator or liquidator of SEI, or its parent company, SEI Investments Company, in the event that bankruptcy proceedings against SEI should ever occur. "

"All client assets will be held in omnibus accounts by SEI Global Nominee Ltd. This means that SEI Global Nominee Ltd will pool your assets with the assets of other clients and therefore your individual entitlements may not be identifiable by separate certificates or physical documents of title. In the event of a shortfall in the accounts following a default of SEI Global Nominee Ltd or a sub-custodian, you may not receive your full entitlement and may share any losses pro-rata with other clients."

Thanks in advance for any enlightenment!

TCA

Anybody?

Do those of you with over £50k invested spread your investments over different platforms or are you confident that there were will be no default by the nominee company holding your investments?

ChesterDog

I think this is the normal set up. Seems to be similar to the Share Centre, for example. The company operating the nominee accounts exists purely for that purpose and so, you might think, is unlikely to run into significant difficulties itself.

Food for thought though.

pip895

I Don't - I'm with HL - must admit I have sometimes wondered about the advisability of having everything in one basket. The convenience has overridden so far. I will watch this thread with interest though.

Linton

TCA wrote: »

Anybody?

Do those of you with over £50k invested spread your investments over different platforms or are you confident that there were will be no default by the nominee company holding your investments?

My understanding is that generally the nominee companies used to hold your shares are non-trading and cannot incur liabilities and so cannot default. Their purpose is solely to legally own the shares, they dont do anything.

The only risk, which is pretty remote, is fraud and errors. If you work through a reputable regulated broker you should be reasonably well covered.

I do spread my investments over several platforms, but that is to ensure I am not seriously at financial risk if the platform is unavailable because of computer failures or a failure of the platform company. I have no worries about losing ownership of shares or of money held in funds.

jimjames

TCA wrote: »

Anybody?

Do those of you with over £50k invested spread your investments over different platforms or are you confident that there were will be no default by the nominee company holding your investments?

What risks are you worried about? If you explain those then we may be able to comment on the ways to mitigate.

You are not covered for loss of value of an investment or poor choice of shares within a fund. If a fund manager goes bust you wouldn't need cover as the funds are held separately to the manager's assets.

TCA

TCA wrote: »

Do those of you with over £50k invested spread your investments over different platforms or are you confident that there were will be no default by the nominee company holding your investments?

jimjames wrote: »

What risks are you worried about? If you explain those then we may be able to comment on the ways to mitigate.

Err, "default by the nominee company holding your investments"

TCA wrote: »

I'm trying to get my head round how the FSCS works in relation to platform nominee accounts and what the chances of losing out are in the case of default if invested at over the £50k level.

bowlhead99

But TCA what do you mean by 'default'?

As Linton says, the company only exists to hold assets for others. Investors' assets are held separately from fund managers' own assets and brokers' own assets. As the nominee does not have obligations, other than to pass the assets' cashflows to the beneficial holder of those cashflows, the nominee is not going to find itself in a position where it has made a bad business decision and incurred a liability that it cannot settle. Because it doesn't make business decisions or incur liabilities.

As others have said - this holds true absent criminal fraud and negligence, where all bets are off. Those things can exist; doing anything in life, you have "counterparty risk" in that there's a risk the person on the other side of the transaction doesn't keep to their side of the bargain.

If you invested in an issue of shares of Tesco or Royal Mail or Lloyds Bank or ABC plc or XYZ plc, even directly without going through a nominee, the registrar of that company could fail to register the shares in your name or simply reregister them in someone else's name and make you go to court to get reinstated. One would hope that they don't. Or that when they do it just enough to make enough money for themselves to flee to Brazil, and they have hundreds of thousands or millions of transactions to choose from to perpetrate their fraud, it is not your transaction that they select.

jimjames

bowlhead99 wrote: »

But TCA what do you mean by 'default'?

That was exactly my question. I'm trying to understand what risks are concerned about. I'm over the limit with one platform but it isn't something that has really concerned me. Even with something like Barings crashing investors in funds they ran were not affected and that was when potential fraud was involved.

IronWolf

jimjames wrote: »

That was exactly my question. I'm trying to understand what risks are concerned about. I'm over the limit with one platform but it isn't something that has really concerned me. Even with something like Barings crashing investors in funds they ran were not affected and that was when potential fraud was involved.

But recently we had the MFGlobal scandal where fraud saw investors lose out.

It can and does happen, but for a lay person it is basically impossible to know if fraud is going on behind closed doors.

TCA

bowlhead99 wrote: »

But TCA what do you mean by 'default'?

As Linton says, the company only exists to hold assets for others. Investors' assets are held separately from fund managers' own assets and brokers' own assets. As the nominee does not have obligations, other than to pass the assets' cashflows to the beneficial holder of those cashflows, the nominee is not going to find itself in a position where it has made a bad business decision and incurred a liability that it cannot settle. Because it doesn't make business decisions or incur liabilities.

I took the word "default" from the last paragraph of the terms I quoted. Not a great choice in hindsight. Bankruptcy or insolvency is really what I was getting at.

I appreciate that the nominees are non-trading companies but wasn't sure whether this is just a term or whether they physically aren't permitted to trade. Obviously if the latter then no worries.