The consolidated financial results of the Financial segment are shown as follows:
Exhibit 1: Extract of note 8 to PTEC’s audited financial statements for 2020
Exhibit 2: Extract of Finalto Trading Limited (FTUK)’s audited financial statements for 2016-2019 filed with Companies House
https://find-and-update.company-information.service.gov.uk/company/08663212/filing-history
According to FTUK’s financial statements, FTUK acts as a broker in Foreign Exchange (Forex), Contract for Difference (CFD) and spread bets on behalf of clients. The company takes margin deposits from clients and deposits into client accounts that it maintains with FCA-approved financial institutions. Clients take on Forex contracts or CFD at FTUK. Those contracts essentially allow them to trade the direction of securities over the very short-term.
Clients then bet on different directions of FX and Commodities. They need to maintain a certain percentage of margin deposits in their accounts. When market fluctuates, clients may demand more margin deposits to maintain their positions. When individual clients’ balance drops to a certain level against their open positions, FTUK will make a margin call and, hence, reduce their positions. Therefore, FTUK is unlikely to have bad debts under this business model.
However, as can be seen from FTUK’s audited financial statements, its debtors are as follows.
Exhibit 3:
In addition to the noteworthy Trade debtors part, we do not see any significant client receivables either. After reviewing the business model and receivable history of FTUK, we consider it abnormal to have significant “Provision for bad debts” of US$9,800,000.
Irregularity in financial information
In PTEC’s 2020 annual report, note 8 to the audited financial statements showed that the Financial segment had an impairment of financial assets* of EUR 4,026,000 (@1.18 equivalent to HK$4,750,000) in 2019, which is much lower than FTUK’s bad debts of US$9,800,000 in the same year. It is completely unreasonable that the provision for bad debts of a single subsidiary can be greater than that of the whole segment, which presumably is composed of more than nine above mentioned financial subsidiaries.
People may argue that this discrepancy may be due to the effect of elimination of expenses during the consolidation process. However, according to note 16 to FTUK’s 2019 audited financial statements, this US$9,800,000 provision for bad debts was not mentioned as related-party transaction/balance. In other words, those debts, which subsequently became irrecoverable, were advanced to independent third party (I3P).
* Equivalent to “provision for bad debts”
Questions
After reading all these, here are the questions:
1) Who are those I3Ps? Why did the FTUK management approve a credit of US$9,800,000 and subsequently consider it not recoverable, given that FTUK or TradeTech Alpha Ltd or TTA had the following credit risk measure in place?
Exhibit 4: Extract from Pillar III disclosures in FTUK’s 2019 annual report
2) Why was the US$9,800,000 provision of bad debts not properly reported in the consolidated financial statements of PTEC?
3) Are these unrecoverable debts related to CFD trades, forex trades or spread betting? If not, please elaborate.
4) Why has the board of FTUK changed so dramatically? Please see the following comparison:
Other than non-executive director Paul Hearn, most of the directors in 2019 are gone. What happened in 2019 and 2020?
