The High Court has approved a distribution plan in the special administration of Rational Foreign Exchange Ltd which enables the joint special administrators â Kristina Kicks and Edward Boyle of Interpath â to return safeguarded funds to customers. The judgment is the first reported case relating to a payments firm distribution plan involving an EU customer nexus and a significant shortfall in safeguarded funds available for distribution.
Following the removal of passporting rights under the PSRs post-Brexit, the special administrators also sought declaratory relief in relation to the status of Rational FXâs EU customers. The firm had been employing a number of methods to maintain relationships with its EU customers â some of which lacked a regulatory basis. Particularly given the shortfall in safeguarded funds this required the special administrators to determine whether these clients were customers of Rational FX or another EU company, and whether they had a claim to the relevant funds.
In the absence of specific guidance or previous case law, the Court found:
- Where Rational FX had provided payment services to EU customers in breach of PSR 2017 and broader UK regulatory requirements, the funds provided for the purpose of such transactions remained relevant funds;
- The arrangements asking existing EU customers to accept amended terms attempted to change the contracting party, but the amendments were ineffective in practical terms and they remained customers of Rational FX; and
- New EU customers contracting with an EU entity, rather than Rational FX, were not Rational FX customers and had no claim to the relevant funds.