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Treasury proposes new regime to minimise impact of investment firm failures

The Treasury has today set out proposals for a new special administration regime for failed investment firms that aims to protect clients and creditors and maintain financial stability in the UK.

The regime will include new objectives to ensure that administrators focus on the return of client assets, engagement with market infrastructure bodies and the authorities and maximise returns to creditors.

To accelerate the return of client assets the plan proposes that the administrator should be able to set a bar date for claims.

Where there is a shortfall in assets to return to investors, the losses will be divided on a pro rata basis.

Entry into the special administration regime will be through the normal court process of a court appointing an administrator.

The FSA will then have to decide whether to apply the regime or a normal insolvency procedure.

This flexibility is intended to ensure that any non-investment firms that fall within the scope of the regime, for example an insurance intermediary holding client money, can be would down through normal insolvency procedures.

The paper also suggests giving the FSA the power, after consulting with the Bank of England and the Treasury, to direct administrators to prioritise its objective to protect the stability of the financial markets.

The Treasury, which has worked with industry experts, the Bank of England and the FSA to develop the regime, says it does not expect to impose any additional regulatory costs on the private sector.

Commercial Secretary to the Treasury Lord Sassoon says: “Investment firms are a core part of the national and international financial system and play a critical role in providing market liquidity.

“It is crucial to reduce the impact of an investment firm failure on the stability of the UK financial systems. The proposed new special administration regime will provide administrators with clarity and direction to manage a firm’s winding up in a way that is both less expensive and less disruptive.”


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