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Earthquake strikes AIM as Beaufort Securities goes into administration

Prominent broker Beaufort Securities and its sister company Beaufort Asset Clearing Services have been forced into administration by the Financial Conduct Authority (FCA) in a move that is likely to have serious repercussions for the market. Following an urgent application from the regulator, after it judged the two firms to be insolvent, the High Court appointed PriceWaterhouseCoopers (PWC) as administrators of both businesses with immediate effect. This aggressive action has taken many by surprise, including many staff at Beaufort from what we understand. Questions are now being asked how this situation has come about so suddenly given how favourable market conditions have been over the last eighteen months.

In its statement this morning, the FCA said it believed it necessary for PWC to take over the running of the two companies in order to protect assets from dissipation and protect customers of both firms. It also imposed requirements on both organisations that will force them to cease all regulatory activity and bans them from disposing of any business or client assets without the FCA’s consent.

‘The FCA took this action following an assessment of the financial positions of BSL and BACS that led the FCA to believe that both firms are insolvent,’ it said.

Quite what drove the FCA such a devastating conclusion is unclear. On the face of it Beaufort Securities was a very successful firm. The market had been buoyant and there was little advance warning that the business was in such dire straights. The company had not previously announced any cost cutting measures nor had it laid off staff in significant numbers.

The news is likely to have widespread implications for AIM, with many investors using accounts with Beaufort to hold and manage their investments. Those funds and stock will now be tied up for an indefinite period, while PWC sifts through the wreckage.

On its website, Beaufort states that ‘Investors assets are held on trust in accounts segregated from Beaufort’s own assets’ and that ‘in the unlikely event of default by Beaufort, investors’ assets would be allocated to the beneficial owner. These assets would not be considered as belonging to Beaufort and therefore would not be used to repay Beaufort’s creditors in the event of liquidation.’

As the business is FCA-regulated, the FSCS can award up to £50,000 in compensation to clients where the FSCS decide an investment business is in default and unable to satisfy any claims against it. However according to advice given by the FSCS this morning to ValuetheMarkets.com, this is only applicable in cases where ‘negligent advice’ has been given, and therefore would not cover execution-only accounts.

The FCA said customers who require more information about how they will be affected should contact PwC.

The helpline number is:

UK – 0800 063 9283

International – +44 (0)20 7293 0227

PWC’s administrators will contact all affected customers of the companies in due course.

Beaufort has had a number of troubles since December 2016, when the FCA restricted its discretionary powers, meaning it could not hold or receive additional client money or assets. It was also banned from engaging Beaufort Asset Clearing Services as a provider of outsourced services or third-party administration. The firm has been the subject of 13 complaints to the Financial Ombudsmen service over the past two years, with nine of these being upheld.

There is speculation that these indicators were harbingers of today’s collapse, but this doesn’t satisfactorily explain why the FCA judged Beaufort Securities and Beaufort Asset Clearing Services to be insolvent.

We’ll update more on this developing story over the coming days.

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