RationalFX Clients to Suffer Significant Losses as Safety Procedures Were Not Followed

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Former clients of RationalFX will lose more than half of the funds they held with the international money transfer company because it failed to follow safeguarding procedures adequately.

According to the first progress report from Interpath, the estate's administrators, the value of the identified safeguarded funds that can be distributed to customers is approximately £4.6 million​​.

However, the total value claimed by former customers is £9,413,389 from UK clients and £10,044,094 from EU clients​​.

"We currently estimate a return of between 10p/£ and 20p/£ for those with claims to Safeguarded Funds," says Interpath in its first Progress Report.

RationalFX collapsed in November 2023, immediately severing thousands of clients from the funds they paid into the firm for onward payment to recipient accounts denominated in foreign currencies.

The company was founded by Rajesh Agrawal, a former Deputy Mayor of London for Business. He was an unsuccessful Labour Party candidate in the recent General Election.

Interpath was assigned to administer the failed firm, return client money as a priority, and then secure funds for creditors.

As a payment institution, RationalFX received client funds and paid them into recipient bank accounts at competitive exchange rates. The FCA requires such payment institutions to segregate the money they receive from clients into safeguarded bank accounts to avoid any losses if the company fails.

However, according to the administrator's report, it all went awry for RationalFX when a number of complex financial payment deals with EU-based clients went wrong, resulting in significant losses for the business.

Because the amount held in safeguarded accounts is far less than was required, customers who had funds with RationalFX that were to be transferred will have suffered significant losses.

This raises questions about what the company was doing with funds that were supposed to be separate from its own finances.

It also raises questions about the FCA's oversight of payment institutions. The FCA requires payment firms to place funds in a separate account from the institution’s working capital and other funds. Alternatively, the funds must be covered by an appropriate insurance policy or comparable guarantee.

FCA regulations state that the "obligation to safeguard starts immediately on receipt of funds."

Regulations also required that RationalFX segregate customer funds "by moving them into a segregated account as frequently as practicable throughout the day." Looking at the figures provided by the administrators, RationalFX was not in compliance with its obligations.

EU-based customers of RationalFX - who signed up for their services via EU-registered entities - could miss out completely as there are question marks as to whether their funds were segregated.

The administrators have said they will ask the courts to clarify whether EU-based customers are entitled to the identified safeguarded funds.