HM Treasury has issued a consultation paper on proposals for a special administration regime for investment banks which it hopes will lead to less disruption in financial markets and simplify the process of returning assets and money to clients and creditors of a failing bank.

The new regime would cover insolvencies of banks which are not put into the new special resolution regime for banks. The new system is not expected to impose any additional regulatory costs on firms. The proposals are designed to ensure co-ordination between regulators and bodies such as clearing houses, and will provide administrators with clarity and direction to manage the winding up of an investment bank in a way which is both less expensive and less disruptive.

The proposals would require administrators to focus on the return of client assets, maximising returns to creditors and co-operating with the relevant regulatory authorities. Entry into the new regime would be through the normal court process for the appointment of an administrator. The FSA would then have to decide whether to apply the new regime or normal insolvency procedures. It is proposed that the FSA will have power to direct administrators to prioritise the FSA's objective of protecting the stability of financial markets.

The consultation period ends on 16 November and the new regime is to be introduced by Regulations under powers in the Banking Act 2009 which lapse if they are not exercised by 11 February 2011.

The consultation paper can be found here.