Following proposals Treasury made at the end of 2009, it has now published for consultation draft regulations setting up a special resolution regime for investment banks. The regime will apply to firms that meet all of the following three conditions:
- they carry on at least one of the regulated activities of safeguarding and administering investments, dealing in investments as principal and dealing in investments as agent;
- they hold client assets (Treasury intends to make an order clarifying that this includes client money, and also that the regime does not apply to insurance intermediaries that hold client money); and
- they are incorporated in or formed under the law of any part of the UK.
Treasury has been careful to apply general insolvency law so far as possible. Much existing law will apply fully or with only minor changes but there will also be new aspects to the regime. These will include:
- procedural aspects of applications under the special administration regime;
- the process for release of client assets;
- arrangements for meetings of creditors and clients; and
- dealing with the costs of administration relating to the return of client assets.
The Government hopes the regime will generally benefit unsecured creditors. The consultation includes detail on the process and engagement of market infrastructure bodies and authorities, including giving FSA a power to make a direction that the administrators prioritise one of more of the "special administration objectives" (SAOs). The consultation also includes the draft Investment Bank Special Administration Regulations 2011, which include tables showing application of the Banking Act and Insolvency Act. Consultation closes on 16 November.