The report entitled Developing effective resolution arrangements for investment banks sets out the Government’s ideas on how to reform and strengthen the UK’s ability to deal with the failure of an investment bank.
It says: “It is important to realise that the failure of a global investment bank was not something that had been anticipated in any jurisdiction, and no insolvency and regulatory regime, in any country, was fully adapted to address it.”
The report outlines the Government’s thinking on the changes to market practice, regulation, and insolvency law that might be needed to deal with any future failue of a major investment bank.
It considers the treatment of investment banking clients after default, the future of their assets, and the treatment of their open or unreconciled trading positions.
The report says there is currently a lack of transparency around the execution and clearing and settlement choices being made by brokers on investors behalf. It says that investors do not understand the variable cost and risk exposures that such choices mean for them and that this should be looked at.
It also examines what can be done to make the process of insolvency more effective, and to limit the damage that may be done by a failing investment bank.
City minister Lord Myners says: “The UK’s insolvency regime is an important aspect of its attractiveness as an international centre for investment banking. The Government is committed to maintaining these advantages and strengthening the existing solvency regime.”
CMS Cameron McKenna spokesman Ash Saluja says: “Myners is addressing some of the holes left in the Banking Act. This includes yet another example of firms being required to plan for their own demise – investment banks may have to draw up contingency plans and business information packs which administrators and regulators would use if the bank ever hit the rocks.”