Improvements to the Investment Bank Special Administration Regime

Financial Services Update

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The Investment Bank Special Administration Regime (SAR) was introduced in 2011 in response to difficulties faced in the Lehman Brothers administration. Following a review of the regime by Peter Bloxham in 2014, and a Government consultation in 2016, the Treasury has introduced draft regulations to improve the regime - The Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017. The draft regulations are currently before Parliament and are expected to come into force in February 2017.

The draft regulations include amendments to:

  • Make it easier for an administrator to transfer client assets
  • Strengthen the bar date mechanism
  • Provide that client money claimants cannot 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. This is to discourage claimants from waiting to see which estate they are likely to get more out of before making their claim
  • Include a duty on the administrator to co-operate with the scheme manager of the FSCS
  • Provide for contracts for services relating to the safe custody of client assets to continue despite the administration

The most significant changes relate to transfers and to the bar date mechanism.

Transfers will be made easier by the removal of restrictions on transferring clients' assets and contracts, including the removal of any requirement for client consent to the transfer where the whole of the business of the investment bank is to be transferred. Safeguards remain to protect set-off and netting arrangements and restrictions on transfer will still apply when only part of the business is to be transferred.

The bar date mechanism will be strengthened by extending the mechanism to client money and providing for a 'hard bar date'. A hard bar date will allow the administrator to set a final deadline for submission of client claims and then efficiently to transfer any unclaimed assets to the general estate.

Measures to require certain third parties to co-operate with the administrator, which were considered in the consultation last year, will not be implemented by these draft regulations.

The FCA carried out a consultation on changes to the CASS rules in parallel with the Treasury's consultation on the SAR last year. We can expect to hear more from the FCA on its proposed changes now that the legislative changes to SAR are nearing finalisation.