The government today (25 April 2013) launched a consultation on its plans to change the way that systemically important payment and settlement systems are dealt with in the event of insolvency.
Under the proposed special administration regime, the administrator would have the overarching objective to maintain the continuity of the insolvent firm’s critical payment and settlement services, thereby ensuring that the failure of such a company would not threaten the stability of the wider financial sector.
The proposal forms part of the government’s work on extending protection from failing banks to other types of financial institutions. In last year’s consultation ‘Financial sector resolution: broadening the regime’, which led to the introduction of resolution powers for central counterparties, respondents were keen that similar powers should be introduced for other types of financial market infrastructure. The government has considered these responses and has worked closely with UK authorities to produce a special administration regime for payment and settlement systems.
Financial Secretary to the Treasury, Greg Clark, said:
Payment and settlement systems play a vital role in financial markets, providing the infrastructure which underpins financial transactions, but their failure has the potential to severely disrupt financial stability.
The government is determined to ensure that no firm, of whatever type, threatens financial stability in the event of failure. Today’s consultation is just the latest step in the government’s efforts to learn the lessons of the past and to create a safer financial system for the future.
The special administration regime would also have the following additional modifications from a normal insolvency procedure:
- a power of direction for the Bank of England over the special administrator, to enable it to exercise a degree of control over the process and to clarify to the special administrator how best it can meet its financial stability objectives
- transfer powers to give the special administrator the means to transfer all or part of the business to an acquirer on an expedited basis
- restrictions on early termination of third party contracts to ensure that crucial third parties, such as service providers, do not terminate their contracts with a payment or settlement system solely because of its entry into the special administration regime
The special administration regime could be applied to the following types of firms, which are all systemically important to the UK financial sector and have the potential to cause significant disruption should their critical services be suspended:
- operators of recognised inter-bank payment systems
- operators of securities settlement systems
- key service providers to these firms
Notes for editors
Special administration regime for payment and settlement systems (PDF 345KB)
The consultation period lasts for eight weeks, closing on Wednesday 19 June 2013.
Financial sector resolution: broadening the regime (PDF 472KB)
Financial sector resolution: summary of responses (PDF 214KB)
This proposal seeks to address the risks posed by the potential failure of payment and settlement systems. The UK authorities have regulatory oversight of these companies to minimise the risk of failure occurring in the first place.
On 26 March 2013 the government launched a separate consultation Opening up UK payments addressing the issue of competition in the payment systems sector.
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