As envisaged under the Banking Act 2009, in December 2009 the Treasury released a consultation on Establishing Resolution Arrangements for Investment Banks.

The proposals result from the difficulties encountered in the Lehman Brothers UK insolvency and will be of interest to both FSA regulated investment firms and their clients.

The proposals include:

  • a new special administration regime for a failed UK investment bank (as defined in the Banking Act 2009) which aims to ensure that the administration is conducted with due regard to financial stability and the proper functioning of markets, the need for speedy recovery of client assets, ensuring creditors are sufficiently protected and the reconciliation of counterparty positions;
  • requirements for investment firms to manage for failure (including models for living wills);
  • methods to reduce the risk exposure of clients whose money or assets are held with investment firms;
  • the establishment of a client assets trustee (CAT) who would be tasked with upholding the interests of client money and asset holders and speeding up the return of assets post-insolvency; and
  • the establishment of a client assets agency (CAA) which would take over responsibility from the FSA for the regulation and ongoing supervision of client money and asset requirements for authorised firms.

After the consultation, the Government plans to publish detailed proposals, including draft secondary legislation. If the plans go ahead, this will add another level of complexity to the UK’s insolvency regimes. Comments are due by 16 March 2010 (http://www.hm-treasury.gov.uk/d/consult_investmentbank161209.pdf).