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. The company is effectively bankrupt and is being wound up by the administrators, KPMG.
Why has this happened?
Spread-betting companies are authorised by the 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 doesn't seem to have happened at WorldSpreads. On the morning its shares were suspended, it disclosed that it owes customers £29.7m, but only has cash balances of £16.6m leaving a shortfall of £13.1m. The FSA is investigating the matter and the police are also involved. Whether the £13m shortfall is due to fraud or whether it's in fact simply a case of error still 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, however, get back any money owed above £50,000.
What about other spread-betting firms?
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: "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)."
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