Reyker Securities: More than a custodian

It is often only when a distributor enters administration or ceases trading that we hear about administrator and custodian Reyker Securities. But the firm also creates bespoke solutions for institutional and retail clients. Vita Millers reports


The name Reyker Securities has been heard in relation to two distributors that ceased to trade in the UK structured products market this year: Merchant Capital, which went into administration following perceived liquidity problems, and Incapital UK, which pulled out of the European market in January. These may seem like dramatic developments, but with Reyker Securities already underwriting the two companies' existing products, not much actually changes from the investor's point of view.

Reyker has been handling structured products for the past eight years - mostly providing bespoke back-office services for retail structured product distributors - what Adrian Barnwell, head of risk management and strategy at Reyker Securities in London, refers to as promoters. "We can do everything from handling applications, administration, custody, plan management and acting as a payment agent for the retail clients," says Barnwell. "As we are a regulated broking firm, we have permission to control and hold client money - that distinguishes us from what a typical promoter does."

For the companies that work with Reyker Securities, no assets go through the distributor. "They are bundled by the promoter and sold to independent financial advisers (IFAs), who advise the clients. With everything else involving the product, the retail investor will deal directly with Reyker. Once the company invests in products with the issuers, effectively the promoter is out of the loop - if it disappears, that doesn't affect existing products," he says.

When Incapital Europe pulled out of the UK market, Reyker assured structured product investors that it is the ongoing custodian and administrator for all existing plans, and that a dedicated in-house team will deal with income, rollovers, capital distributions and investor portfolio valuations on April 5 and October 5 each year. "Promoters come and go - that's the reality of it. But the banks stay there, we stay there, and consumers remain protected," says Barnwell.

Roughly a quarter of Reyker's business involves structured products. In addition to its back-office services, the company also helps advise discretionary clients who are looking for something specific. "Typically we cater for clients who want to achieve a particular risk profile or exposure to a certain tax structure and yield profile within the risk framework they're willing to accept. Sometimes we do that directly, and sometimes hand in hand with an IFA," he says.

Reyker will only deal with "reputable" products, says Barnwell. "It tends to be products that are straightforward, such as those that are capital protected or have exposure to recognised indexes. Often, they'll have a kickout feature," he says. "If they're related to specific stocks, it tends to be plans that are using well-known underlying stocks. From our point of view, we like it if the product fits within our own attitude to risk - which is lower to moderate - and if it delivers enough return for the amount of effort put into it."

When Prichard Stockbrokers collapsed in February last year, Reyker took on around 15,500 retail clients for which Prichard had previously acted as custodian on behalf of Merchant Capital. Barnwell says the reason some financial companies get into trouble is because they comingle clients' investments with their own funds. "If you look at some well-publicised problems in relation to client money, they tend to arise because firms had not properly segregated client money from corporate money. Under the Financial Services Authority's rules, it is possible for money to be temporarily comingled. Then, if something happens, they have 24 hours to strip it out. We don't do that. Client money never gets comingled - it goes straight into a designated trust account and never gets mixed up with the firm's money."

Barnwell says his outlook on the structured products industry is generally positive and he does not rule out the possibility of more work with retail structured products. "We receive lots of enquiries from people interested in getting into the market," he says.

He believes the structured products market is likely to grow this year as a result of financial regulation that forces banks to consider a wider range of options for raising money. "Both the capital rules relating to banks and the tightening of the regulatory framework between investment and retail banking will likely make it more difficult to raise the necessary capital over the next four to five years, so banks will re-evaluate how they raise money," he says. "That may actually give a boost to the structured products market - it's an attractive way of raising long-term money and controlling their interest rate risk, especially if you can build kickout features into a product."

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