Deposit Not secured

Tenancy Deposits

I am anew landlord and i didn't secure one of the tenants deposit under AST.
Tenancy is due to finish on 04/10/2020.

The tenant has paid £725 deposit and i didnt came round to secure it.

Due to covid-19, tenant left for their country of origin. they given me the keys of the flat and its been empty since. They wanted to terminate the agreement, which i didn't accept and they paid some rent towards the arrears.
Now arrears are at appx £1200 and they send me letter saying i havent secured the deposit and they are asking to negotiate or they will take legal action.

what should i do??

TIA