The Government considers introducing requirements for investment firms to develop and maintain recovery and resolution plans, or "living wills".
HM Treasury published two consultation papers in May and December 2009 setting out possible changes to UK regulation and market practice to minimise disruption caused by any future failure of an investment firm.
The Government has specified a number of areas which might merit change, including requiring firms to develop and maintain recovery and resolution plans, or so-called "living wills". These living wills would be aimed at ensuring continuity of critical IT systems (whether captive operations, shared service centres or outsourced operations) during insolvency, and would include:
- a "business information pack" (BIP) that could be presented to administrators, detailing the firm's IT infrastructure, operations and critical IT systems; and
- "insolvency proof" contractual arrangements with key IT service providers surviving 90 days after insolvency. The Government proposes requiring firms to "ring fence" adequate liquid funds on an on-going basis to pay key IT service providers and personnel during this period.
If implemented, firms are likely to be forced to incur increased costs to comply with these requirements. Firms may need to negotiate key IT contracts on an entity-by-entity basis rather than on a group-wide basis (as is often the case given firms' global IT infrastructure and operations) and firms would also incur costs in developing and maintaining BIPs, and appointing new business resolution officers to direct firms' resolution actions during insolvency.
The two consultation papers are available at: http://www.hm-treasury.gov.uk/consult_investment_banks.htm and http://www.hm-treasury.gov.uk/consult_investment_banks2.htm.