On 6 April 2017, together with the new Insolvency Rules (England and Wales) 2016, the Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017 (the “Regulations”) will come into force.
These regulations follow an independent review of the special administration regime, undertaken by Peter Bloxham during 2013, assessing the success of the special administration regime and making recommendations of possible changes that may improve the operation and robustness of the regime.
The amendments made pursuant to the Regulations aim to extend and strengthen the existing regime, while also simplifying processes, in the following ways:
- extending the definition of “investment bank” (as set out in the Banking Act 2009) to include institutions which are regulated to manage alternative investment funds (AIFs) or undertakings for collective investments in transferable securities (UCITS) and those acting as trustee or depository of an AIF or UCITS;
- including provisions for dealing with client money (not just client assets as previously enacted);
- introducing an additional duty for the administrator to co-operate with the scheme manager of the FSCS;
- making it easier for an administrator to transfer client assets;
- introducing a soft bar date mechanism which allows the administrators to distribute client assets and client monies without court approval and a hard bar date after which any client money claim received is to be treated as an unsecured claim;
- removing the right of client money claimants to claim interest from the general estate (except in respect of any shortfall which they would have had if they had made a claim on the client money pool);
- providing for contracts for services relating to the safe custody of client assets to continue despite the administration; and
- giving administrators the power to move client money between accounts on a final reconciliation of the amount of client money which the bank is required to hold in accordance with rules with the amount of client money it holds in client money accounts.
It is worth noting that the ability to challenge the conduct of special administrators has been extended under paragraph 74 of Schedule B1 of the Insolvency Act 1986 to include challenges by the FSCS, the regulators and parties affected by a transfer of the client business. Further, in cases where costs have been incurred as a consequence of the investment bank’s failure to comply with client money rules, the administrator now has to obtain the agreement of the creditors or the court on the level of costs, which are to be met out of the investment bank’s own assets.
Finally, in addition to the Regulations, on 23 January 2017, the FCA published a consultation paper on Client Asset Source Book (CASS) Rule 7A and the special administration regime. The consultation seeks feedback on proposed changes to the CASS rules affecting the return of client assets in light of the Regulations.
The full Regulations can be found here.