Government consults on winding down non-bank finance firms

LONDON Wed Aug 1, 2012 2:30pm BST

Financial services minister, Mark Hoban, speaks during the Reuters Future Face of Finance Summit in London March 1, 2011. REUTERS/Benjamin Beavan

Financial services minister, Mark Hoban, speaks during the Reuters Future Face of Finance Summit in London March 1, 2011.

Credit: Reuters/Benjamin Beavan

Related Topics

LONDON (Reuters) - The government will give its regulators new powers to wind down failing investment firms and clearing houses to avoid wreaking havoc in the wider market, saying the timing of similar European Union rules was too uncertain for it to wait.

The government already has powers to force a deposit-taking bank to be wound down in an orderly way and without needing taxpayer help.

The financial services minister Mark Hoban said on Wednesday the government wants similar powers over parts of the non-banking financial system.

Sectors being looked at include insurers, investment firms, clearing houses and payments systems such as those provided by banks for credit and debit transfers.

The government published a consultation paper ahead of legislative proposals.

"This consultation underlines the government's commitment to maintaining the UK's position as a pre-eminent global financial centre, while also ensuring that the financial services sector is able to provide essential services to the wider economy without posing a risk to financial stability," Hoban said.

EU TOO SLOW

The EU is scrutinising a law for a resolution regime covering investment firms and banks but the timing of its adoption is uncertain. The UK government "intends to prepare to legislate domestically on a more accelerated timetable".

There will also be a full resolution regime for UK incorporated parent firms of systemic investment firms and deposit-taking institutions.

Britain only has a special administration regime for investment firms and the UK arm of U.S. broker MF Global was the first firm to be subject to this regime.

The Treasury said it would shortly start a separate review of obstacles to the timely return of client assets and money to investors from a failed firm. Investigators into MF Global are searching for $1.6 billion in missing customer funds.

The EU is due to propose a law giving supervisors powers to wind down a failing clearing house, but Britain said it wants to push ahead earlier and will legislate domestically first.

The UK law would allow the Bank of England to step in and ensure continuity in critical clearing services.

Central bankers published a draft blueprint on Tuesday to force clearing houses, such as LCH.Clearnet in London, to show how they could be wound down in an orderly way or kept going if they got into trouble.

LESS CLEAR CUT

Turning to insurers, the government said a failure in the sector currently leads to a "run-off", whereby a firms stops writing new business and existing policies mature over time.

The case for a specific resolution mechanism for insurers is not clear cut but the current insolvency framework should be reviewed, the consultation paper said.

Global insurance supervisors are thrashing out criteria for deciding which of the world's biggest insurers must undergo tighter supervision to avoid them getting into trouble in the first place.

The government said it was also undecided on whether a resolution regime was needed for other types of market infrastructure such as exchanges and trading platforms, trade repositories, payment systems or securities settlement systems.

The failure of even part of the payments system, as seen recently at Royal Bank of Scotland, affects millions of customers. The government suggests two approaches - strengthening existing insolvency rules or a new resolution framework - or possibly a mix of solutions.

(Reporting by Huw Jones; Editing by Helen Massy-Beresford)

FILED UNDER: