WorldSpreads: will you get your money back?

Spread betting firm WorldSpreads has gone into administration, owing customers millions. Phil Oakley looks at the chances of clients getting their money back.

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Your broker going bust is probably a private investor's worst nightmare. Last week shares in WorldSpreads - a prominent spread betting firm - were suspended after accounting irregularities were found and the finance director resigned. This morning, the company is effectively bankrupt and is being wound up by administrators.

Why has this happened?

Spread betting companies are authorised by the regulator the Financial Services Authority (FSA) - to hold and control their customers' money. Under the rules, this means that all deposits made by customers and any unrealised spread betting profits should be held in separate bank accounts. This money cannot be used by the spread betting company for its own use.

This does not seem to have happened at WorldSpreads. This morning it disclosed that it owes customers £29.7m but only has cash balances of £16.6m leaving a shortfall of £13.1m. Whether this is due to fraud or error remains to be seen.

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Will I get my money back?

WorldSpreads Limited is regulated by the FSA and is covered by the Financial Services Compensation Scheme (FSCS). This means that customers owed £50,000 or less should be compensated for all the money they are owed. You may not get back any money owed above £50,000.

What about other spread betting companies?

Providing that they are part of the FSCS and that all customers' funds are held in separate bank accounts, there should be nothing to worry about. There is some speculation that other spread betting companies may be owed money by WorldSpreads but this should not affect the safety of customer funds.

How long will it take to get my money back?

This is what the FSCS website says on this matter:

"The FSCS tries to resolve all claims against Investment firms, Insurance Brokers, and Mortgage Brokers within six months of receipt of your correctly completed Claim Application Form, or within six months of the company being declared in default (whichever is later)."

Phil Oakley

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.

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