On December 16, the UK Government published a report entitled “Establishing resolution arrangements for investment banks,” in which it set out proposals to strengthen the UK’s ability to deal with any future failure of an investment bank. The report builds on ideas outlined by the UK Government in a May 2009 discussion paper (as reported in the May 15 edition of Corporate and Financial Weekly Digest).

The UK Financial Services Secretary, Paul Myners, said: “The collapse of Lehman Brothers last October had a major impact on financial centers across the world. It is important that the government acts to ensure that any future failure of an investment bank does not cause the same degree of damage to markets or investors.”

The core of the proposals is a set of measures designed to enable the managed wind-down of an investment bank. This includes the development of a new administration (insolvency) regime for a failed investment bank. Specific initiatives set out in the report expressed to be designed to achieve better outcomes for key groups affected by the failure of an investment bank include measures to speed up the return of client money and assets, address counterparty exposures to the firm, and ensure creditors are sufficiently protected.

The report recognizes the need for proposals such as these to be taken forward in an international context.

The UK Government aims to continue a period of consultation before publishing a final report in the second quarter of 2010 setting out firm proposals and a timetable for action.

Click here to read the report in full.