As reported in the Irish Times on Sunday Apr 20, 2014
“The Central Bank has frozen the bank accounts of Asset Management Trust, an independent Dublin investment firm, having carried out inquiries into client assets, investment issues and other matters, it has been confirmed.
The authority has asked AMT not to take on new business in an intervention that came about after some clients of the company raised concerns about the valuation of investments.
The company has assets under management of €30 million to €40 million. The Central Bank is understood to have begun inquiries into the company’s affairs in recent weeks”.
It is too early to say what specifically happened in this case, but we are nonetheless interested in subjects like this because they undermine confidence in the financial system and in particular call to mind questions about Trust.
Trust is not a tangible concept, you cannot buy it and you cannot sell it but you do have to earn it and constantly strive to maintain it.
An intermediary such as AMT must at all times maintain positive shareholders funds. Failure to do so means that the business is making a loss which is a sure sign of possible trouble ahead.
Professional Indemnity Insurance
It is a requirement of an intermediary's authorisation with the Central Bank of Ireland that they maintain professional indemnity insurance.
This is an important safeguard protecting the interests of clients as it provides access to a “deep pocket” should anything go wrong.
Investor compensation scheme
Intermediaties are members of the Investor Compensation Scheme established under the Investor Compensation Act, 1998. This legislation provides for the establishment of a compensation scheme and to the payment, in certain circumstances, of compensation to clients of firms covered by the Act. However, you should be aware that a right to compensation will only arise where money or investment instruments held by this firm on your behalf cannot be returned either for the time being or in the foreseeable future and where the client falls within the definition of eligible investor as set out in the Act. In the event that a right to compensation is established, the amount payable is the lesser of 90% of your loss which is recognised as being eligible for compensation or €20,000. Your legal rights are not affected by this scheme.
Most intermediaries don’t hold client funds
Investments in mutual funds should be held by highly regulated and respected custodians to provide safe custody and administration services.
The custodian holds clients’ securities separately and distinctly from its own assets.
As segregated assets they are fully protected in the extremely unlikely event of default or bankruptcy of either the custodian or its sub custodians. In most markets, the custodian operates through omnibus accounts where client securities are held on behalf of clients in the name of the custodian or its nominee company.
This structure provides asset protection for underlying clients as the market recognises the custodian or its nominee as merely the account holder who holds assets on behalf of underlying beneficial owners. This beneficial ownership is reflected in the custodian's book of record.