Security of Your Investments

The Security of your Investments

Client Money and Investments held by Charles Stanley & Co. Limited

Although the government has effectively nationalised (and thus underpinned) the weaker parts of the UK banking system it is understandable that we continue to receive enquiries from clients about the security of the funds that we place for them on deposit, and about the security of the investments that Charles Stanley looks after for them.

We currently hold around £10 billion of investment assets for our clients, and about £1 billion comprises cash deposits and credit balances which we hold for clients.

First, it is important to note that:

• Charles Stanley & Co. Limited is an FSA-authorised firm;
• we are not a bank or deposit-taker in our own right. Nor are we owned by a bank, or have any significant banking shareholder;
• our parent company, Charles Stanley Group Plc, is wholly independent, is listed on the London Stock Exchange, is not conducting a banking business, and is acting purely on your behalf, and not as a bank, in arranging for the way in which your money is deposited.

The effect of this is that:

• unlike a bank, we are not using your money in running our own business, nor are we lending it to other clients, nor investing it in anything else;
• instead, we are holding it for you in trust, placing it on deposit for you, and it remains your money at all times; and
• your money has to be ring-fenced from the assets of Charles Stanley, and is kept strictly segregated as "client money" in accordance with the rules of the FSA.

Where do we place your money?

We pool your money with that of many other clients, and place the entire pool, 100%, with leading banks. To try and increase the security for you we don't place the money with a single bank, but divide it between, typically, four or five different banks at any one time. We carry out our own analysis on the banks that we choose, and they are each rated as at least AA- by a leading independent credit rating agency. The choice of banks, and the proportions in which we divide the money, are subject to our periodic review and careful selection.

This choice of banks with whom we place clients' funds can vary from day to day. But we believe that you are entitled to know where the money is placed at any given time and will tell you this during business hours whenever you ask.

Are your deposits guaranteed?

The banks amongst whom we divide the deposits do of course guarantee re-payment. But this guarantee is only as good as the bank itself. If it should become insolvent or its assets are frozen or seized by the government, then we will of course make every effort to recover the money. But our own guarantee can only be as good as that of the banks with whom we place the funds. We have received advice from a leading firm of lawyers that the appropriate treatment in such circumstances is to pro-rata the entire pool of funds that we hold for clients so that the effect of any default is proportionately the same for each client.

What is Charles Stanley's status in this?

As explained earlier, we hold funds for clients as their trustee, and we have a fiduciary duty to take good care of it. This is a responsibility which of course we take very seriously indeed. Our Business Terms do however make it clear that ultimately we will not be liable in the event of default by any of the banks with whom deposits are placed.

How am I covered by the official compensation scheme?

With certain exceptions, for example larger companies, depositors in banks which are regulated by the FSA are entitled to compensation of up to £50,000. We understand that holders of joint accounts are each eligible for compensation of up to £50,000. The FSA rules provide that client funds which are held in trust, as described above, are treated as if deposited directly by the client with the bank with which we ourselves place the money, and therefore rank for the same compensation. For this purpose our understanding, based on legal advice, is that the proportion of your deposit which we place with a particular bank would be aggregated with any money that you hold directly with that bank, to determine your total deposit, and the maximum compensation to which you would be entitled, if that bank fails, would be the first £50,000 of this combined figure.

You can read more about the compensation scheme on these web-sites:

http://www.fscs.org.uk/consumer/FAQs/Deposit_claims_FAQs explains more about the compensation scheme, and

http://www.moneymadeclear.fsa.gov.uk/news/product/compensation_limit.html describes the recent increase in the maximum to £50,000

How about the investments that you are holding for me?

The very great majority of the investments that we hold for clients are registered in the name of our nominee company, Rock Nominees Ltd, which is wholly guaranteed by Charles Stanley & Co. Limited. As with client money, these assets are carefully ring-fenced from the assets of the company, and are subject to regular checking and reconciliation. We hold the investments in trust for you and they remain your property at all times.

Certain overseas countries do not recognise the concept of trust or nominees, and in few cases, therefore, we have to hold clients' overseas investments directly in the name of Charles Stanley & Co. Limited. We apply what safeguards we can in these circumstances, and as provided by the rules of the FSA, and our Business Terms explain this in more detail.

What about the security of Charles Stanley itself?

Because the money and investments that we look after for clients are held in trust, and are carefully ring-fenced, the position of Charles Stanley itself should not pose a risk to their security. Clients' assets are kept separate from those of the company. Charles Stanley itself is one of the larger UK private client stockbroking firms, with a history of more than 150 years. But in the hopefully unlikely event that we are called on to rectify a problem, then. in addition to the strength of the Charles Stanley Group balance sheet, as a public company, we carry substantial insurance cover at Lloyds of London.

Finally

We hope that this covers all the points that you might wish to ask about the security of your money and assets that you place in trust with Charles Stanley. But if there is any more that you would like to know, please do contact your individual broker at Charles Stanley, who would be delighted to help.

21 October 2008