Keeping client money safe

Freetrade Team

June 20, 2018

Freetrade Team

We recognise that we’re the new kids on the block, and it’s not unreasonable to ask why you should trust us with your hard-earned cash. Well, let me set your minds at ease and explain all the safeguards we use to protect your investments.

We recognise that we’re the new kids on the block, and it’s not unreasonable to ask why you should trust us with your hard-earned cash.

Well, let me set your minds at ease and explain all the safeguards we use to protect your investments.

Our controls and processes

The first lines of defence are our daily controls and processes.

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These include (but are not limited to):

  • Daily cash and stock reconciliations between our records and the bank or custodian
  • Performing due diligence over all our key third party suppliers
  • Confirming that all trades are acknowledged and matched with the other side the day before settlement
  • Ensuring we have the correct legal agreements in place with our banks and custodians confirming that your assets do not belong to Freetrade.

Both myself and Adam (our CEO) were auditors at PwC and KPMG respectively. We have lots of experience testing clients’ controls and processes, and we know what good (and less good!) looks like.

With this experience, we’re implementing a best practice controls framework. Since controls are only as strong as the people performing them, we’re also building a superb team with the skills to run it.

FCA’s CASS rules

We also hold all your money and assets under the FCA’s CASS rules, which means they are held in segregated accounts, separate from the company’s money.

For each of our deposit banks and custodians we have a legally binding letter acknowledging that your assets do not belong to us, and can’t be used in the event of us entering administration to cover any debts we may have.

We maintain detailed records of who all the cash and stocks we hold belong to, so if something were to go wrong on our end, these can be quickly identified and distributed to you as the owner.

The audit

In addition to our own controls, we are subject to an annual audit. This covers both our financial performance (and our treatment as a going concern — ie that we will be able to continue to operate for 12 months) and our controls over client money and assets.

We have engaged PwC, one of the Big 4 accountancy firms and arguably (in my totally unbiased opinion as an alum!) the top audit firm in the country.

We aren’t required to go with such a prestigious audit firm, and few startups would, but we felt that it was important to work with the best. We expect them to really challenge us, and hopefully their audit opinions should give you plenty of confidence.

The elephant in the room — Beaufort Securities

Now, the “big” news story in the world of client assets — Beaufort Securities. A relatively obscure broker, Beaufort went into administration in February 2018. Many of you might have seen that the administrator is expecting to use some of the segregated client assets to pay their fee for running down the company.

This is the first time someone has tried to do this, and we, along with many of our competitors, will be dismayed if it goes ahead as we feel it is important that if client assets are segregated, they should be safe.

We’ll have to wait and see where this goes, and it’s important to note that only a tiny number of the largest investors will be impacted. However this case is undoubtedly concerning for money managers across the industry.

Financial services compensation scheme (“FSCS”)

Finally, if all else fails, as a regulated UK financial business, all deposits with us are covered by the FSCS (financial services compensation scheme).

In the unlikely event of our bankruptcy, it’s also unlikely that client assets would be exposed at all to administrators. But even in this improbable worst case scenario, the compensation scheme will cover funds up to £85,000.

If you’re very concerned and cautious, just make sure you don’t exceed the cap on the compensation scheme with any one broker (just like bank deposits).

Hopefully this article has given you confidence that we’re all over protecting your cash and stock. It’s crucial to us that we do the right thing by our customers, and keeping you safe is the minimum.

As we grow we’ll continue to enhance our controls, and strive to automate where possible to remove the risk of manual error.

We’re building the best possible investing experience for you, with a control framework to match it! 💪

~Rob, Head of Finance

Important Information

This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice.

When you invest, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.

Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).

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