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Excess of FSCS Cover

The insolvencies of MF Global and PFG Best in the USA and WorldSpreads and Pritchards Stockbrokers in the UK has raised the profile surrounding security of client funds and investors are now looking far more closely at the security of their funds.

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In the UK, the Financial Services Compensation Scheme (FSCS) covers individual retail clients up to £50,000. It is not uncommon for investors to spread their deposits across a number of brokers for the added protection it affords them. The product below is especially attractive, not least as a way of giving clients sufficient rest assurance to deposit more than this amount, with any one individual broker.

Gallagher, with the support of Lloyd’s of London (Lloyds), have devised an innovative new insurance product that gives the retail client of a broker dealer rest assurance that their funds are protected above the provisions of the FSCS. This product is new to the UK and will change for the better the way that the retail investor trades, by providing the investor far greater protection and compensation rights through the selection of the right broker dealer.

The main driver behind the purchase of such a policy is to give additional confidence/rest assurance to the retail clients of the broker dealer that should the firm become insolvent, and there be a shortfall in customer assets, that they will be fully reimbursed even if their deposit exceeds the current compensation threshold of £50,000. Such covers have been especially popular in the USA and are bought by some of the largest broker dealers on Wall Street and are placed in the London insurance market, which is the only insurance market in the world for this type of product.

The product is underwritten by Lloyd’s. Lloyd’s is the world’s specialist insurance and reinsurance market, bringing together an outstanding concentration of underwriting expertise and talent. It is often the first to insure emerging, unusual and complex risks. Around 88 syndicates underwrite insurance at Lloyd’s, covering all classes of business. Together they interact with thousands of brokers daily to create insurance solutions for businesses in over 200 countries and territories around the world.

Upon taking out this insurance cover, we would expect a broker dealer to embark on a significant marketing drive to promote this additional protection afforded to customers of theirs. In the USA, it is commonplace for broker dealers to pay their premium out of their marketing budget as it is seen as one of the key tools in attracting new clients, increasing deposit sizes and retaining existing clients.

To obtain a better understanding of the product and how it could work for your business, contact our specialist team today.