17 December 2009

UK Treasury consults on plans to manage investment bank failures

The consultation contains a set of measures to enable the managed wind-down of an investment firm. These include the development of resolution plans for firms, a set of special administration objectives and new responsibilities for the board.

The report outlines a package of more than 30 policy initiatives, designed to mitigate the impact of any future investment banking failure.  The Government is seeking stakeholder feedback on its proposals. A further document with final proposals, and draft secondary legislation as necessary, will be published in 2010.

The Government accepts the need for cross-border cooperation to address the failure of a systemically important firm. It will consider the measures required to achieve this; for example, by seeking the mutual recognition of international regimes that have similar safeguards as the UK.

The proposals look at introducing processes that will allow for the managed wind-down of a future failed investment firm, including resolution plans and a new insolvency regime for investment banks, with special administration objectives.

Some of the following proposals are presented in the report:

Requiring firms to manage for failure:

·         Business resolution officers: officers at  Board level, with delegated responsibility to coordinate and implement firm-level resolution actions.

·         Investment firm resolution plans: resolution plans including internal actions by the firm followed by market-facing resolution actions immediately prior to insolvency

·         Business information packs: contemporaneous and accurate repositories of information for administrators to use in the event of the investment firm’s insolvency.

·         Continuity of key services: key staff and supplier contracts to provide continuity of services following insolvency.

 

Reconciling counterparty positions:

·         Explicit requirement that CCPs offer facilities for their members to segregate client business.

·         Consider requirement that investment firms offer facilities to segregate client business: to ensure a choice of accounts for clients.

·         Monitor the development of EUI proposal to prevent uncertainty of settlement in future: by freezing pending instructions relating to an insolvent entity.

 

Managing complex creditor positions:

·         Support proposals to enable a greater degree of certainty with respect to derivatives transaction terminations

·         Set up a resource centre; providing best practice guidance to insolvency practitioners on the administration of large, complex investment firms.

 

Press release

Full report

 

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