Shearman & Sterling LLP | FinReg | HM Treasury Publishes Response to Consultation on Insolvency Changes for Payment and Electronic Money Institutions
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  • HM Treasury Publishes Response to Consultation on Insolvency Changes for Payment and Electronic Money Institutions

    HM Treasury has published its response to feedback on its December 2020 consultation on a proposed Special Administration Regime for payment institutions and electronic money institutions that fall within the scope of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. The SAR is designed to address shortcomings of the existing insolvency regime and would apply alongside Part 24 of the Financial Services and Markets Act 2000, which would also be extended to apply in full to PIs and EMIs. Key objectives of the regime will include returning customer funds as soon as reasonably practicable, facilitating timely cooperation with payment systems and authorities and rescuing the institution as a going concern or winding it up in the best interests of creditors.

    The draft Payment and Electronic Money Institution Insolvency Regulations 2021, based on HMT's consultation, have been laid before Parliament. Respondents to the consultation raised a series of issues which prompted certain amendments to the regulations, including:
    • Introducing additional steps into the regime to assuage concerns around the distribution principles, including a requirement on insolvency practitioners to give reasonable notice before a bar date (barring claims from customers) comes into effect, to provide that notice to all persons who the administrator believes has an entitlement to funds and requiring the special administrator to engage closely with payment system operators during the administration; and
    • Clarifying the position on set-off and netting, in response to concerns that business transfers should not override set-off and netting provisions.

    Concerns around retrieving funds from non-U.K. institutions were also raised by respondents. HM Treasury considers that these fall within the scope of the Payments Landscape Review, which deals with broader concerns around safeguarding.
    Further statutory instruments containing the draft rules, which were consulted on by HMT in a separate supplementary annex in December 2020, are expected in Parliament later this year. The proposed rules are closely linked to the Investment Bank SAR rules and will cover areas such as:
    • The procedure for applying to court for a special administration order;
    • The process for the special administration, including the administrator's obligation to advertise and notify certain parties of his/her appointment and the particulars to be included in the administrator's statement of proposals;
    • Payment of the expenses of the special administration;
    • The mechanics for distributions to creditors;
    • The powers of administrators and provisions concerning the fixing of remuneration; and
    • The procedure by which a special administration can be brought to an end.

    View HM Treasury's response.
    View details of HM Treasury's consultation.
    View details of HM Treasury's supplementary annex consultation.
    View details of the UK Payments Landscape Review.
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