FCA-backed scheme approved for failed insurance broker

The High Court has approved a bespoke scheme for the distribution of approximately £13 million in client money held by failed insurance broker EC3 Brokers Ltd, giving joint administrators Anthony Wright and David Hudson of FRP Advisory a Court-sanctioned route to return funds despite serious deficiencies in the company’s historic records.

EC3 Brokers was an FCA-regulated insurance broker operating in the London market and internationally, placing insurance and reinsurance business for corporate clients. At the date of its administration in November 2022, the company held around £13 million in client money across multiple currencies, together with interest that had grown to roughly £300,000 by the time of the hearing. The administration followed trading losses, staff departures, restructuring difficulties, and the presentation of a winding-up petition by HMRC.

Because EC3 handled client money subject to Chapter 5 of the FCA’s Client Assets Sourcebook (CASS), those funds were held on statutory trust rather than forming part of the company’s estate. On insolvency, the money became subject to a single client money pool, requiring administrators to identify beneficiaries and distribute funds rateably according to their entitlements.

That process was heavily complicated by the state of the records. The administrators found three overlapping databases, including multiple Excel spreadsheets and a broking software system that could not be relied upon without corroboration. They uncovered significant discrepancies between systems, misallocated payments, incorrect references, foreign currency reconciliation problems, bulk settlements processed without care, and uncertainty as to whether certain monies were held for insurers or non-insurer clients.

The administrators advised that one of the central challenges was determining when “risk transfer” arrangements applied. Where risk transfer existed, premiums paid to the broker could be treated as received by the insurer. Where it did not, monies were generally held for the client under trust principles. In many cases, however, the contractual evidence was incomplete or unavailable.

To deal with those issues, the administrators designed a scheme of distribution after consultation with the FCA. The regulator modified the relevant CASS rules to facilitate implementation, subject to Court approval. The scheme adopted a two-stage claims process, requiring insurers to submit claims first, followed by non-insurer clients, on the basis that insurers were more likely to have reliable records that could assist the broader reconciliation exercise.

The scheme also incorporated a rebuttable presumption that, where the administrators could not determine whether risk transfer applied, monies should be treated as held for non-insurer clients unless contrary evidence emerged.

Judge Briggs held that this approach was rational and consistent with the policy of CASS 5, which prioritises protection of non-insurer clients.

Chief Insolvency and Companies Court Judge Briggs granted the directions sought by the administrators, endorsing their pragmatic approach in the face of the uncertainty surrounding the records. Drawing on authorities such as MF Global, the Court accepted that office-holders may distribute trust assets on the basis of the best practical reconstruction of entitlements, rather than waiting indefinitely for perfect information.

Judge Briggs also approved bar date mechanics similar to those used in other client asset cases, allowing claimants who failed to engage by a fixed deadline to lose any continuing interest in the pooled fund. Small balances below £100 could be excluded from individual notice procedures where the cost of adjudication and payment would be disproportionate. Unclaimed entitlements could be transferred to the Insolvency Service on terms similar to unclaimed dividends.

Of particular relevance to office-holders, the Court authorised payment of the administrators’ remuneration, costs and expenses from the client money pool. Costs of £1,084,949 plus VAT incurred to February 2026 were approved in full, with a further £702,068 plus VAT sanctioned for completion of the distribution exercise. The judge found the work proportionate and necessary, citing regulatory liaison, reconciliation efforts, communications with stakeholders, understanding historic risk transfers, and the complex interaction between legacy systems.

Read the decision here.

Thomas Munby KC of Maitland Chambers (instructed by Pinsent Masons) acted for the joint administrators, Anthony Wright and David Hudson of FRP Advisory.