SVS Securities - shut down?

masonic

pafpcg said:

From my recollection, subsequent to the publication of the FAQ document, there was discussion in this forum thread in which someone claimed that LC had revealed that one of the three final bidders had been vetoed by the FCA because of the involvement of one of the ex-directors of SVS.  It's entirely possible that LC were selecting a bidder from a list of only one!

Yes, it was my recollection that ITI won by default, and I thought the one that pulled out did so when they'd been whittled down to the final two (i.e. after the veto). Regarding that final paragraph, the FCA must formally approve the choice of broker, as must the creditors' committee. To suggest they weren't integral to the decision process is absurd.

johnburman

Masonic we simply don't know what the FCA did in the sale by LC of the svs assets 

Any properly registered broker and only one regulated could buy svs assets remembering all the various businesses lines carried out by svs.

My guess is that the FCA breathed a sigh of relief when iti appeared. 

RasputinB

pafpcg said:

eskbanker said:

pafpcg said:

eskbanker said:

Sheris said:

eskbanker

The FCA and LC was after the highest bidder in terms of monies, with no respect to the clients of SVS.
No homework or detail into ITI past history, should have accepted a lower bidder with a history for the transfer.
Incompetent is a understatement for the FCA and LC with unprofessional common sense what was always going to be the outcome.            

Out of curiosity, were the bid values published?

The full figures haven't been published as far as I know.  The amount to be paid by ITI (aka the "nominated broker") was stated in the Distribution Plan (April-20) but was redacted. In Appendix B of the Second Progress Report (26-Aug-20), there was a payment of £80,000 (made in January 2020) which was the non-returnable deposit made by the Nominated Broker to LC; there should have been a further payment (the "Initial Consideration") paid by ITI to LC on completion of the formal transfer in June 2020 - I haven't been able to identify the payment.  So all I know is that ITI paid in excess of £80,000.

Fair enough, thanks - I suppose what I was really getting at was how did ITI's bid stack up against their fellow bidders (and who were they)?  The contention is that FCA/LC should have selected a better quality bid rather than the highest, but it's not clear to me exactly what that competition looked like at the time - perhaps it's all buried somewhere in the other 627 pages of this thread!

Found it! 

The selection process by Leonard Curtis, the Administrators, was outlined in a document "Frequently Asked Questions - Transfer to ITI Capital Ltd" dated 11-Jun-20.  Here's the relevant section:

"Q. WHY WAS ITI SELECTED?
 
As previously advised, the Administrators have concluded that the quickest and most cost-effective
way for Client Assets and Client Money to be returned to clients is by way of a transfer to a single
broker regulated by the FCA.
 
Following their appointment, the Administrators engaged a specialist marketing company with
relevant experience to undertake an accelerated marketing process to identify an appropriate single
broker to whom the Client Assets and Client Money held by the Company could be transferred.  
 
As part of the accelerated marketing process, a shortlist of over 100 potential bidders was created,
with company information being made available to those parties that expressed an interest in
participating in the transfer, subject to the receipt of a confidentiality undertaking. A deadline was
subsequently set for indicative offers, of which the Administrators received eleven from FCA
regulated firms. The Administrators considered those offers in conjunction with the overall strategy
and allowed the eleven potential bidders to conduct further due diligence, setting a further deadline
for best and final offers. Three parties submitted final offers, one of whom subsequently withdrew
from the bidding process. Further due diligence was then undertaken by the remaining two brokers
and negotiations undertaken with each party.
 
The Administrators subsequently selected ITI as the preferred broker for the transfer and the terms
of the proposed transfer were agreed between the parties (in the "Sale and Purchase Agreement").
A key factor in the Administrators' decision was the scope of the FCA permissions granted to ITI,
which made ITI a suitable broker to receive, and deal with, the variety of Client Assets and Client
Money held by the Company.
 
Following the completion of this process, ITI was selected as the preferred broker by the
Administrators without objection by the FSCS or the FCA.  The Creditors' Committee were also

consulted on the choice of ITI."

Note the curious wording in the final paragraph, presumably to absolve FSCS and FCA from any responsibility for the choice of ITI - not objecting does not imply a recommendation.

From my recollection, subsequent to the publication of the FAQ document, there was discussion in this forum thread in which someone claimed that LC had revealed that one of the three final bidders had been vetoed by the FCA because of the involvement of one of the ex-directors of SVS.  It's entirely possible that LC were selecting a bidder from a list of only one!

LC concluded that the quickest and most cost-effective way for Client Assets and Client Money to be returned to clients was by way of a transfer to a single broker regulated by the FCA.

So that is what LC did even though there was no suitable broker bidding. (I think that ActivTrades were interested too https://www.bilibili.com/read/cv8387839 )

Wouldn’t the admin team at SVS have been capable of handling the transfers out? They certainly did an admirable job with my transfer to Interactive Brokers – about one week for most holdings. Those in paper format were bogged down at ITI Capital whose excuse was that due to Covid they couldn’t get in the office.

masonic

RasputinB said:

Wouldn’t the admin team at SVS have been capable of handling the transfers out? They certainly did an admirable job with my transfer to Interactive Brokers – about one week for most holdings. Those in paper format were bogged down at ITI Capital whose excuse was that due to Covid they couldn’t get in the office.

The transfer that was done involved bulk reregistration of assets to ITI Capital's nominee company and provision of each client's list of holdings. This was a manageable task within the resources available. Performing individual transfers for each client to a broker of their choice would have been a huge undertaking that would have taken many months even with a huge team. Only a small number of key SVS staff were retained by LC to keep the IT systems running, but even if more were retained it would likely be necessary to recruit and train additional team members to handle such a large volume of bespoke work. This would have been in conflict with LC's requirement to act in the interest of SVS's creditors and clients, since they would have had to bear much higher costs. Potentially costs above the FSCS compensation limit for those holding assets subject to discrepancies. And the amount claimed from the FSCS would have been a lot higher, too, which would have a knock on effect for all UK investors. The FCA and FSCS would never permit this, and they'd be right to take that stance.

Even if the nominated broker paid nothing for the bulk transfer of assets, it would have been a no brainer to transfer assets in bulk rather than carry out 21,000 individual transfers to a variety of brokers.

Where I think a mistake was made, was in not separating the sharedealing and fx/CFD clients and selecting a nominated firm that specialises in each. This would not have taken an excessive amount of extra effort, and would surely have resulted in larger and more reputable firms being selected. There is precedent for administrators providing 2-3 nominated brokers to suit different types of client, for example Beaufort Securities.

RasputinB

masonic said:

RasputinB said:

Wouldn’t the admin team at SVS have been capable of handling the transfers out? They certainly did an admirable job with my transfer to Interactive Brokers – about one week for most holdings. Those in paper format were bogged down at ITI Capital whose excuse was that due to Covid they couldn’t get in the office.

The transfer that was done involved bulk reregistration of assets to ITI Capital's nominee company and provision of each client's list of holdings. This was a manageable task within the resources available. Performing individual transfers for each client to a broker of their choice would have been a huge undertaking that would have taken many months even with a huge team. Only a small number of key SVS staff were retained by LC to keep the IT systems running, but even if more were retained it would likely be necessary to recruit and train additional team members to handle such a large volume of bespoke work. This would have been in conflict with LC's requirement to act in the interest of SVS's creditors and clients, since they would have had to bear much higher costs. Potentially costs above the FSCS compensation limit for those holding assets subject to discrepancies. And the amount claimed from the FSCS would have been a lot higher, too, which would have a knock on effect for all UK investors. The FCA and FSCS would never permit this, and they'd be right to take that stance.

Even if the nominated broker paid nothing for the bulk transfer of assets, it would have been a no brainer to transfer assets in bulk rather than carry out 21,000 individual transfers to a variety of brokers.

Where I think a mistake was made, was in not separating the sharedealing and fx/CFD clients and selecting a nominated firm that specialises in each. This would not have taken an excessive amount of extra effort, and would surely have resulted in larger and more reputable firms being selected. There is precedent for administrators providing 2-3 nominated brokers to suit different types of client, for example Beaufort Securities.

I am not at all sure about your point that LC were required to keep costs down. This was a Special Administration and they were required to act under the instruction of Mr Justice Miles’ Judgment and not necessarily in the interest of SVS's creditors. Mr Justice Miles made a point of referring to the lack of any rules governing the costs of administering the return of client assets. Whilst I expect that he would have considered the views of the FCA and FSCS (both of whom appear to have been mute) I doubt that he would have needed any permission from either of them.

I quite agree with you that separating different clients and selecting a specialist firm that specialises in each might have been a good plan. But I think that a great problem for LC was that there were a lot of difficult client issues (e.g. subject to sanctions, little detail on source of funds, dubious identity documentation, clients who’d disappeared) and a lot of difficult assets (e.g. not in electronic format, not acceptable by mainstream brokers, not tradeable, of minimum value) so they decided to market the client book as one package.

They covered Objective 1 of the Distribution Plan (i.e. returning client assets as early as possible) by getting the assets to ITI Capital which takes us back to previous arguments regarding the shortcomings of the Distribution Plan….

masonic

RasputinB said:

masonic said:

RasputinB said:

Wouldn’t the admin team at SVS have been capable of handling the transfers out? They certainly did an admirable job with my transfer to Interactive Brokers – about one week for most holdings. Those in paper format were bogged down at ITI Capital whose excuse was that due to Covid they couldn’t get in the office.

The transfer that was done involved bulk reregistration of assets to ITI Capital's nominee company and provision of each client's list of holdings. This was a manageable task within the resources available. Performing individual transfers for each client to a broker of their choice would have been a huge undertaking that would have taken many months even with a huge team. Only a small number of key SVS staff were retained by LC to keep the IT systems running, but even if more were retained it would likely be necessary to recruit and train additional team members to handle such a large volume of bespoke work. This would have been in conflict with LC's requirement to act in the interest of SVS's creditors and clients, since they would have had to bear much higher costs. Potentially costs above the FSCS compensation limit for those holding assets subject to discrepancies. And the amount claimed from the FSCS would have been a lot higher, too, which would have a knock on effect for all UK investors. The FCA and FSCS would never permit this, and they'd be right to take that stance.

Even if the nominated broker paid nothing for the bulk transfer of assets, it would have been a no brainer to transfer assets in bulk rather than carry out 21,000 individual transfers to a variety of brokers.

Where I think a mistake was made, was in not separating the sharedealing and fx/CFD clients and selecting a nominated firm that specialises in each. This would not have taken an excessive amount of extra effort, and would surely have resulted in larger and more reputable firms being selected. There is precedent for administrators providing 2-3 nominated brokers to suit different types of client, for example Beaufort Securities.

I am not at all sure about your point that LC were required to keep costs down. This was a Special Administration and they were required to act under the instruction of Mr Justice Miles’ Judgment and not necessarily in the interest of SVS's creditors. Mr Justice Miles made a point of referring to the lack of any rules governing the costs of administering the return of client assets. Whilst I expect that he would have considered the views of the FCA and FSCS (both of whom appear to have been mute) I doubt that he would have needed any permission from either of them.

I quite agree with you that separating different clients and selecting a specialist firm that specialises in each might have been a good plan. But I think that a great problem for LC was that there were a lot of difficult client issues (e.g. subject to sanctions, little detail on source of funds, dubious identity documentation, clients who’d disappeared) and a lot of difficult assets (e.g. not in electronic format, not acceptable by mainstream brokers, not tradeable, of minimum value) so they decided to market the client book as one package.

They covered Objective 1 of the Distribution Plan (i.e. returning client assets as early as possible) by getting the assets to ITI Capital which takes us back to previous arguments regarding the shortcomings of the Distribution Plan….

Perhaps I misunderstood your prior post. I thought you were advocating doing the transfer client by client, but it seems you are taking an even more extreme view than me regarding the impracticality of splitting up the client book. We are more or less in agreement on this point.

The judge is certainly within his rights to make rulings on matters of law, but a Special Administration is built upon a foundation of basic insolvency law, and the underlying legislation governing general insolvencies still applies (this is one of the challenges of a Special Administration - managing conflicts between the two bodies of legislation). What is added is an obligation to prevent uncontrolled damage to financial markets, and also that the FCA's CASS rules for dealing with a firm's failure must be followed. This is why the FCA has a greater degree of power in the Special Administration Regime as applied to investment firms and banks. The distribution of assets cannot proceed without the FCA's agreement to the distribution plan. As you say, a judge will take on board any comments from the FCA/FSCS, and it is extremely unlikely they would push for each client to be able to transfer wherever they wish unless the platform was being operated as a going concern or in orderly wind-down (both of which would mean the costs would be funded).

If you have a transcript of the court proceedings where the rules governing cost of administering the return of client assets was discussed, I'd appreciate having sight of them as the point that was made sounds interesting.

RasputinB

masonic said:
I thought you were advocating doing the transfer client by client, but it seems you are taking an even more extreme view than me regarding the impracticality of splitting up the client book

A point I tried to make was that it looked like LC decided that their best course of action was to get the whole book transferred and having decided that other options weren't fully discussed.
They didn't help ITI Capital by, in effect, dumping the transfers and by quickly getting rid of SVS staff who had hands on knowledge of the client base. The SVS admin. chap I dealt with appeared to be very unhappy with LC and gave me the impression that they had caused problems (for him and for ITI Capital) by not assisting the transfer processes e.g. sending over a load of certificates when ITI Capital expected electronic transfers.
Did you not notice that the Distribution Plan included the obligation to handle Reverse Transfers i.e. "individual transfers for each client to a broker of their choice"? Yes, this was not pushed. In fact LC successfully hid the fact from most and actively discouraged clients in taking that course of action.

masonic

RasputinB said:

masonic said:
I thought you were advocating doing the transfer client by client, but it seems you are taking an even more extreme view than me regarding the impracticality of splitting up the client book

A point I tried to make was that it looked like LC decided that their best course of action was to get the whole book transferred and having decided that other options weren't fully discussed.
They didn't help ITI Capital by, in effect, dumping the transfers and by quickly getting rid of SVS staff who had hands on knowledge of the client base. The SVS admin. chap I dealt with appeared to be very unhappy with LC and gave me the impression that they had caused problems (for him and for ITI Capital) by not assisting the transfer processes e.g. sending over a load of certificates when ITI Capital expected electronic transfers.

The decision to get the whole book transferred to a single nominated broker would have been taken by LC in conjunction with the creditors' committee (including FSCS representative) and the FCA. All of these parties have a vested interest in keeping the costs down: LC due to its obligation under insolvency law; the FCA in order to minimise the burden on the FSCS; the creditors' committee to get that part of the administration done as quickly as possible so as to move on to other matters (to the extent the creditors' committee was constituted of creditors rather than clients - I'm not sure how many of the 4 non FSCS members were which). You made some good points about why that decision may have been necessary, but I remain sceptical that it would have been too difficult to separate the asset classes (shares vs derivatives) to perform a bulk transfer of each of those to different brokers. So, as you say, I think some options were not explored or taken off the table too early.

Perhaps you are right about LC not retaining staff with expertise that could have made things run more smoothly. This raises the question where were the FCA at that critical stage to represent clients interests? This is a perfect example of the conflict of interests brought about by the Special Administration Regime wherein such a matter should have been challenged and brought before the judge for a ruling. Perhaps this did happen. Perhaps there was a reason for the course that was taken. Could it have been a consequence of numerous clients being in default of LSE that the electronic route was no longer available? Just speculation as we'll probably never find out. It certainly seems to me that the FCA should have been focused on consumer outcomes and should have had the foresight to push for electronic transfers to be conducted if that was a possibility.

RasputinB said:

Did you not notice that the Distribution Plan included the obligation to handle Reverse Transfers i.e. "individual transfers for each client to a broker of their choice"? Yes, this was not pushed. In fact LC successfully hid the fact from most and actively discouraged clients in taking that course of action.

I was aware the section on Reverse Transfers, and I believe it was discussed here. I've gone back to the distribution plan to refresh my memory, and it is not what you appear to think it is. Clients had the right to demand that their assets, after being transferred to ITI, were "transferred" back to SVS. I put "transferred" in quotes because the assets would continue to be held by ITI and governed by ITI's T&Cs, but effectively LC would act as an agent for the client, the client would have no direct relationship with ITI and could not contact or be contacted by ITI directly. It would be useful only to those who could not or would not register for direct access to their account with ITI.

To me, that would represent the worst of both worlds, as your onward transfer request would now need to be made by your new broker to LC/SVS, who would then need to sub-contract it to ITI. Having a transfer that is contingent on the timely action of both LC and ITI at each stage sounds like a nightmare, and I don't know how you would trade in the interim if you wished to do so, fill out an form and post it to LC who would then have to pass on your instructions to ITI?

Clearly many suffered great difficulties at the hands of ITI, but would it have been any better to leave it to LC to fight to get problems resolved rather than the clients fighting for themselves? I'm doubtful anything would have been made better through the insertion of LC into the chain of intermediaries.

RasputinB

I don't know how useful it is for us to continue to discuss this but I do have personal experience of transferring back to SVS and the perceived difficulties that you touch on, and that LC were keen to exaggerate, evaporated.
You say that "the client would have no direct relationship with ITI". Yes, ITI Capital tried to pull that one but backed down when I referred them to the Conduct of Business Sourcebook's definition of a client.

johnburman

Guys... All very nice discussing history for a terrible period for almost all of the 21000 clients of svs. They lost access to their investments and then had to deal with ITI who had a complex super difficult IT platform that was almost unusable. Then transfer out of ITI to someone more sensible then make a claim on the FOS..

Such fun 

But how are we going to hold the FCA to account IF it is the FCA 's fault (and they will say it is iti)

PS I missed out the' excitement 'of seeing how the FSCS would cover the losses suffered. Not forgetting the Meeting at CHURCH HOUSE Westminster when they would not say who would not be covered.