FCA, the UK’s financial regulator, appeared in 2013 after reforming the FSA. And the reason for the reform was precisely the scandal with WorldSpreads, a British broker with a capitalization of about 40 million pounds sterling.
- WorldSpreads is a broker that started its operations in 2007 and has successfully passed the 2008 crisis. In March of 2012, the broker, which showed very good progress, suddenly showed a balance deficit of £ 13 million and was immediately closed on fraud charges. On the eve of bankruptcy, the possibility of selling to other buyers (London Capital Group and IG Group) was considered, but the transaction did not take place. Why the UK financial regulator, who analyzed the broker’s reports, did not notice any discrepancies is a question.
Financial regulator of the UK FSA in the last days of existence
According to the law, the broker keeps clients’ money in segregated accounts, that is, accounts that are separate from the company’s personal funds, which precludes the use of client money for personal purposes. The Big Four auditor Ernst & Young for 5 years (2007-2012), like the FSA, did not notice a hole in the balance sheet, which almost did not become a verdict for the auditor by analogy with Arthur Andersen (Enron bankruptcy). It is noteworthy that the competitor of the Big Four auditor filed a lawsuit against Ernst & Young, but after 2 years of proceedings, the auditors signed a settlement agreement.
- Segregated broker accounts (domestic companies like to emphasize this status as the reliability of saving the client’s money) are just a matter of accounting, and not two different bank accounts. Since the broker does not have a “sheet” of operations, that is, it does not divide client money for each client individually, there is a risk of a withdrawal of the aggregate position on the liquidity provider. For several years of work, WorldSpreads employees deliberately brought £ 13 million to their offshore companies under the guise of allowing customers to buy securities.
The fact of fraud was so shocking that it remained only to state his fact. To pay tribute, the UK financial regulator reimbursed almost all brokers a part of the loss (up to 40% of capital), after which it was reformed into FCA and PRA (Prudential Supervision Authority). FCA received reduced powers and completely changed the approach to the collection and analysis of financial statements.
Summary. We do not deny that the UK financial regulator has a lot of merit in the field of financial market supervision, for which the FCA license is considered one of the most significant in the world. But, alas, even such eminent regulators allow blunders that can cost customers thousands of lost money. For information on how CFTC and SEC have made MF Global bankrupt, read one more article on the site of one of the best rebate services FxCash!