Establishing resolution arrangements for investment banks

Practical Law Legal Update 8-501-3507 (Approx. 3 pages)

Establishing resolution arrangements for investment banks

by Simon Lovegrove, Norton Rose LLP

Published on 26 Jan 2010 • United Kingdom

This article is part of the PLC Global Finance January 2010 e-mail update for the United Kingdom.

HM Treasury has published a consultation document (Establishing resolution arrangements for investment banks) in which it sets out its thinking and outlines more than 30 policy initiatives that are designed to mitigate the impact of the failure of an investment firm.

In May, HM Treasury published a discussion paper entitled "Developing effective resolution arrangements for investment banks". In this discussion paper HM Treasury set out its initial thinking on the steps necessary to improve the regime around the failure of investment firms.

HM Treasury has followed up the discussion paper by publishing a consultation document which is entitled "Establishing resolution arrangements for investment banks". In this consultation document the Government provided further detail on its thinking and outlined more than 30 policy initiatives that are designed to mitigate the impact of the failure of an investment firm.

The lay out of the consultation document is as follows:

Chapter 2 sets out proposals for a new administration regime for a failed investment firm. This is to ensure that the administration of a failed firm is conducted with due regard to financial stability and the proper functioning of the markets, as well as with reference to the need for the speedy recovery of assets for clients and counterparties of the firm.
Chapter 3 builds on work HM Treasury, the FSA and the Bank of England have initiated on recovery and resolution plans for individual firms. It highlights proposals for specific new requirements for investment firms.
Chapter 4 sets out proposals to improve the protection for investment firm clients at a pre-insolvency stage.
Chapter 5 sets out the Government’s proposals for the possible creation of the position of a client assets trustee. A trustee would have a role separate to the administrator of a firm in insolvency and would be tasked with prioritising the return of client assets and money.
Chapter 6 sets out proposals to mitigate the impact of investment firm failure on the market counterparties of the firm.
Chapter 7 considers the impact of the proposals on the unsecured creditors of a failed firm.
Chapter 8 discusses the international context in which the proposals described in the consultation document are taken forward.

Perhaps the consultation document strikes a very different tone to the May paper. It recognises more clearly the depth of concern about the UK architecture around administration and protection of client assets and no longer takes the line that the problems were purely practical. The twin messages that client entitlements must be paid out as quickly as possible and that administrators should not fear making interim payments in case creditors claim against them have been heard clearly. It is in this context that the proposals such as those on special administration office holders and limitations on transfers of client moneys to affiliated companies should be read.

The deadline for comments on the consultation document is 16 March 2010.

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