The Investment Bank Special Administration Regulations 2011

• (3) For the purpose of paragraph (1), a partial property transfer which purports to transfer all of the protected rights and liabilities between C and the investment bank is to be treated as having done so effectively (and not in contravention of paragraph (1)) notwithstanding the possibility that any of the protected rights or liabilities are foreign property and might not have been effectively transferred by the arrangement.

• (4) For the purposes of paragraph (2), it is immaterial whether or not—

• (a) the arrangement which permits C or the investment bank to set off or net rights and liabilities also permits C or the investment bank to set off or net rights and liabilities with another person; or

• (b) the right of C or the investment bank to set off or net is exercisable only on the occurrence of a particular event.

• (5) A partial property transfer made in contravention of this regulation does not affect the exercise of the right to set off or net.

• (6) In this regulation—

• “excluded rights”, in relation to rights between C and the investment bank, has the same meaning as it has in relation to rights between C and a banking institution by virtue of articles 1(3) and 3 of the Banking Act 2009 (Restriction of Partial Property Transfers) Order 2009, except that in article 1(3), in the definition of “excluded rights”—in sub-paragraph (e) the reference to subordinated debt is to be read as a reference to subordinated debt issued by C or by the investment bank; andin sub-paragraph (f)—the reference to a set-off arrangement, netting arrangement or title transfer financial collateral arrangement is to be read as a reference to a set-off arrangement, netting arrangement or title transfer financial collateral arrangement referred to in this regulation; andthe references to transferable securities are to be read as references to transferable securities issued by C or by the investment bank;

• “excluded liabilities” means the liabilities which correspond with excluded rights;

• “netting arrangement” means an arrangement under which a number of claims or obligations can be converted into a net claim or obligation and includes, in particular—a “close-out” netting arrangement, under which actual or theoretical debts are calculated during the course of a contract for the purpose of enabling them to be set off against each other or to be converted into a net debt;an arrangement which provides for netting (within the meaning given by regulation 2(1) of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999); andan arrangement which includes a close-out netting provision (within the meaning given by regulation 3(1) of the Financial Collateral Arrangements (No 2) Regulations 2003);

• “partial property transfer” has the same meaning as in regulation 10B(13);

• “set-off arrangement” means an arrangement under which two or more debts, claims or obligations can be set off against each other; and

• “title transfer financial collateral arrangement” has the meaning given by regulation 3(1) of the Financial Collateral Arrangements (No 2) Regulations 2003.

Restrictions on partial property transfers—security interests

10E

• (1) Subject to paragraph (6), paragraphs (3), (4) and (5) apply where under any binding arrangement one party owes to the other a liability which is secured against any property or rights.

• (2) For these purposes it is immaterial whether or not—

• (a) the liability is secured against all or substantially all of the property or rights of a person;

• (b) the liability is secured against specified property or rights; or

• (c) the property or rights against which the liability is secured are owned by the person who owes the liability.

• (3) A partial property transfer may not transfer the property or rights against which the liability is secured unless that liability and the benefit of the security are also transferred.

• (4) A partial property transfer may not transfer the benefit of the security unless the liability which is secured is also transferred.

• (5) A partial property transfer may not transfer the liability unless the benefit of the security is also transferred.

• (6) Paragraphs (3), (4) and (5) do not apply if the investment bank entered into the binding arrangement in contravention of a rule prohibiting such arrangements made by the FCA or the PRA under FSMA or otherwise than in accordance with the investment bank’s Part 4A permission (within the meaning given by section 55A(5) of FSMA).

• (7) For the purposes of paragraphs (3), (4) and (5), a partial property transfer which purports to transfer any property, rights and liabilities is to be treated as having done so effectively (and not in contravention of any of those paragraphs) notwithstanding the possibility that any of that property, or of those rights or liabilities, is foreign property and might not have been effectively transferred by the arrangement.

• (8) In this regulation “partial property transfer” has the same meaning as in regulation 10B(13).

Restrictions on partial property transfers—capital market arrangements

10F

• (1) Subject to paragraph (2), a partial property transfer may not provide for the transfer of some, but not all, of the property, rights and liabilities which are or form part of a capital market arrangement to which the investment bank is a party.

• (2) Paragraph (1) does not apply where the only property, rights and liabilities which are, or are not, transferred relate to deposits.

• (3) For the purpose of paragraph (1), a partial property transfer which purports to transfer all of the property, rights and liabilities which are or form part of a capital market arrangement to which the investment bank is a party is to be treated as having done so effectively (and not in contravention of paragraph (1)) notwithstanding the possibility that any property, right or liability purportedly transferred is foreign property and might not have been effectively transferred by the arrangement.

• (4) In this regulation—

• “capital market arrangement” has the meaning given by paragraph 1 of Schedule 2A to the Insolvency Act;

• “deposit” has the same meaning as in article 5 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, disregarding the exclusions in other articles of that Order; and

• “partial property transfer” has the same meaning as in regulation 10B(13).

Restrictions on partial property transfers—financial markets

10G

• (1) A partial property transfer may not transfer property, rights or liabilities to the extent that doing so would have the effect of modifying, modifying the operation of, or rendering unenforceable—

• (a) a market contract;

• (b) the default rules of a recognised investment exchange , recognised clearing house or recognised CSD; or

• (c) the rules of a recognised investment exchange , recognised clearing house or recognised CSD as to the settlement of market contracts not dealt with under its default rules.

• (2) A partial property transfer is void in so far as it is made in contravention of this regulation.

• (3) In this regulation—

• “default rules” has the meaning given in section 188 of the Companies Act 1989; and

• “partial property transfer” has the same meaning as in regulation 10B(13).

Objective 1—post-administration reconciliation of accounts and records relating to client money

10H

• (1) Immediately after being appointed as the administrator, the administrator must carry out a client money reconciliation in accordance with paragraph (2) and make any transfer required by paragraph (3) or (4).

• (2) The client money reconciliation must—

• (a) be carried out in accordance with the method for carrying out client money reconciliations adopted by the investment bank to meet client money rules, whether or not the method adopted is in compliance with those rules;

• (b) be based on records and accounts of the investment bank as they stood immediately after the last such reconciliation by the investment bank (but taking no further account of money received, or payments, transfers or transactions made, by the investment bank of which account was taken for the purposes of that reconciliation); and

• (c) take account of money received, and payments, transfers and transactions made, by the investment bank after the last such reconciliation and before the appointment of the administrator.

• (3) Where the client money reconciliation shows that amount A exceeds amount B, the administrator must transfer an amount equal to the difference from the investment bank’s own bank accounts to any client money account other than a client transaction account.

• (4) Where the client money reconciliation shows that amount B exceeds amount A, the administrator must transfer an amount equal to the difference from the client money accounts to the investment bank’s own bank accounts.

• (5) In this regulation—

• “amount A” means the total amount of client money which the investment bank, according to its own records and accounts, is required to hold in accordance with client money rules;

• “amount B” means the total amount of client money which the investment bank holds in client money accounts;

• “client money reconciliation” means a reconciliation of amount A with amount B; and

• “client transaction account” means an account with any person which the investment bank maintains for the purpose of—any transaction with or by that person for a client’s benefit; ormeeting a client’s obligation to provide collateral for a transaction.

Objective 1—removal of right to interest on unsecured claims for the return of client money

10I

• (1) This regulation applies where—

• (a) a debt arises from a liability of the investment bank to return client money;

• (b) the client has not submitted a claim for payment of the debt by way of a distribution from the client money pool; and

• (c) the client makes an unsecured claim for payment of the debt.

• (2) The client is not entitled to interest on the debt for the period commencing on the date on which the investment bank entered special administration, except interest on such part of the debt which remains after deduction of the total amount which the client would have received on a claim for payment of the debt by way of a distribution from the client money pool.

Objective 1 – distribution of client assets

Objective 1 - shortfall in client assets held in omnibus account

Objective 1—distribution of client money

12A

• (1) If the administrator thinks it necessary in order to expedite the return of client money, the administrator may by notice set a bar date for the submission of client money claims.

• (2) In setting a bar date the administrator must allow a reasonable time after notice of the special administration has been published (in accordance with insolvency rules) for persons to be able to calculate and submit client money claims.

• (3) As soon as reasonably practicable after the bar date, the administrator must make a distribution of client money in accordance with client money rules to the clients or other persons who are entitled to payment under client money claims.

• (4) A person who submits a client money claim after the bar date, but before the return of client money after that date, must, so far as is reasonably practicable, be included within the distribution of client money under paragraph (3).

• (5) When determining the amount to be distributed under paragraph (3), the administrator must make allowance for the entitlement to the return of client money, by way of a subsequent distribution from the client money pool, of persons who have neither made a client money claim nor received any payment under a previous distribution of client money.

• (6) Where the administrator has returned client money after the bar date, no payment or part of any payment made to any person under the distribution may be recovered for the purpose of meeting a late claim.

• (7) The restriction in paragraph (6) does not apply where—

• (a) client money was returned to a person by the administrator in bad faith in which that person was complicit; or

• (b) a person to whom client money was returned is later found to have made a false claim to the money.

• (8) Where the administrator determines that a client or other person who makes a late claim would have participated in the distribution of client money under paragraph (3) if the claim had been submitted before the return of client money after the bar date, the administrator must include the claimant within a subsequent distribution from the client money pool.

• (9) In this regulation—

• “bar date” means a date by which clients are invited to submit client money claims for the purposes of this regulation;

• “client money claims” are claims for the return of client money which has been pooled in accordance with client money rules; and

• “late claim” means a client money claim received after the bar date other than a claim received after that date from a person who is included within the distribution of client money under paragraph (3).

Objectives 1 and 3—client assets (other than client money) which the administrator is unable to return to clients

12B

• (1) This regulation applies where the administrator, after setting a soft bar date, includes in the distribution plan provision for the option of setting a hard bar date.

• (2) If the administrator thinks it necessary in order to expedite the return of client assets, the administrator may by a hard bar date notice set a hard bar date.

• (3) The administrator may not set a hard bar date without the approval of the court given on application by the administrator.

• (4) A late claim of a type described in regulation 11(1) which is submitted in response to the setting of a bar date under that regulation on or after the date on which the administrator sets a hard bar date is to be treated as a client asset claim.

• (5) Where the administrator sets a hard bar date, the administrator, after that date—

• (a) must return client assets to eligible claimants;

• (b) may dispose of all client assets which the investment bank still holds after the return of client assets to any eligible claimants (“residual assets”); and

• (c) must transfer the proceeds of any disposal of residual assets to the investment bank’s own bank accounts.

• (6) A person who acquires client assets on a disposal of residual assets acquires good title to them as against all clients.

• (7) Where the administrator receives a client asset claim after the hard bar date (“late claim”) and—

• (a) the administrator has not made any arrangements for the disposal of the residual assets, or

• (b) such arrangements as the administrator has made for their disposal do not prevent the administrator from returning them,

the administrator must meet the late claim out of the residual assets.

• (8) Where the administrator has returned client assets after setting a hard bar date and then receives a late claim in respect of assets that have been returned—

• (a) none of those assets may be recovered for the purpose of meeting the late claim; and

• (b) the person to whom the assets have been returned acquires good title to them as against the late-claiming claimant.

• (9) The restrictions in paragraph (8) do not apply where—

• (a) the client assets were returned to a person by the administrator in bad faith in which that person was complicit; or

• (b) a person to whom client assets were returned is later found to have made a false claim to them.

• (10) Where a disposal of residual assets prevents the administrator from meeting a late claim—

• (a) the claim which the late-claiming claimant has against the investment bank in consequence of the disposal ranks as an unsecured claim; and

• (b) the value of the unsecured claim is the value of the consideration paid to the administrator for the assets disposed of which would have been returned to that claimant if their client asset claim had been made before the hard bar date.

• (11) No interest is payable on the debt for which a person makes an unsecured claim under paragraph (10).

• (12) This regulation does not apply to client money.

• (13) In this regulation—

• “client asset claim” means a claim of a type described in regulation 11(1) which is submitted in response to the setting of a hard bar date;

• “distribution plan” means the plan for the return of client assets which the administrator is required to draw up in accordance with insolvency rules after setting a soft bar date;

• “eligible claimant” means—a person to whom the administrator has already returned client assets under regulation 11; ora person who—submits a client asset claim on or before the hard bar date; andwould have been eligible for a return of client assets under regulation 11 if the claim had been submitted in response to the setting of the soft bar date;

• “hard bar date” means a final date (subject to provision for late claims in paragraphs (7) to (10)) for the submission of claims of a type described in regulation 11(1);

• “hard bar date notice” means a notice which specifies a hard bar date and includes a statement that after the end of that day the administrator—may dispose of client assets still held by the investment bank after the administrator has returned client assets to any eligible claimants; andmay, consequently, be unable to meet any further client asset claims; and

• “soft bar date” means a bar date set under regulation 11.

Objectives 1 and 3—client money which the administrator is unable to return to clients

12C

• (1) This regulation applies where the administrator, after setting a bar date under regulation 12A, thinks it is appropriate, in order to achieve Objective 1, to close the client money pool and treat any further claim for the return of client money as an unsecured claim.

• (2) The administrator may by a hard bar date notice set a hard bar date.

• (3) The administrator may not set a hard bar date without the approval of the court given on application by the administrator.

• (4) Where the administrator sets a hard bar date, the administrator may not meet any final money claim received after the hard bar date.

• (5) A final money claim received by the administrator after the hard bar date ranks as an unsecured claim.

• (6) No interest is payable on the debt for which a person makes such a claim, except interest on such part of the debt which remains after deduction of the total amount which the client would have received by way of a distribution from the client money pool if the final money claim had been received by the administrator on or before the hard bar date.

• (7) In this regulation—

• “final money claim” means a claim for the return of client money which is submitted in response to the setting of a hard bar date;

• “eligible claimant” means a person—to whom the administrator has already made a distribution of client money without receiving a claim for the return of client money to that person;who has submitted a claim for the return of client money other than a final money claim; orwho submits a final money claim on or before the hard bar date;

• “hard bar date” means a final date (subject to paragraph (5)) for the submission of claims for the return of client money; and

• “hard bar date notice” means a notice which specifies a hard bar date and includes a statement that after the end of that day the administrator—may, in accordance with client money rules, transfer to the investment bank’s own bank accounts any balance of the client money pool which the investment bank holds after the return of client money to eligible claimants; andmay not meet any further final money claims.

Powers of the court on application to set a hard bar date

12D

• (1) On an application under regulation 12B(3) or 12C(3) for the approval of the court to set a hard bar date the court may—

• (a) make an order approving the setting of a hard bar date;

• (b) adjourn the hearing of the application conditionally or unconditionally; or

• (c) make any other order that the court thinks appropriate.

• (2) The court may make an order under paragraph (1)(a) only if—

• (a) it is satisfied that the administrator has taken all reasonable measures to identify and contact persons who may be entitled to the return of client assets; and

• (b) it considers that if a hard bar date is set there is no reasonable prospect—

• (i) that the administrator will receive claims for the return of client assets after that date; and

• (ii) in the case of an application under regulation 12B(3), that the administrator will receive claims of persons in relation to a security interest asserted over, or other entitlement to, client assets which are not client money.

Bar date notices—procedural requirements

12E

• (1) The persons to whom a bar date notice must be given are—

• (a) all clients of whose claim for the return of client assets the administrator is aware;

• (b) all persons whom the administrator believes have a right to assert a security interest or other entitlement over the client assets;

• (c) the FCA and, where the investment bank is a PRA-authorised person, the PRA; and

• (b) in a special administration (bank administration) before the Bank of England has given an Objective A Achievement Notice, the Bank of England.

• (2) Paragraph (1) does not apply in relation to any such person whom the administrator has no means of contacting.

• (3) A bar date notice—

• (a) must be advertised once in the Gazette; and

• (b) may be advertised in such other manner as the administrator thinks fit.

• (4) In advertising a bar date notice under paragraph (3), the administrator must aim to ensure that the notice comes to the attention of as many persons who are eligible to submit a claim for the return of client assets as the administrator considers practicable.

• (5) In this regulation—

• “Gazette” means—in England and Wales, the London Gazette;in Scotland, the Edinburgh Gazette; andin Northern Ireland, the Belfast Gazette;

• “bar date notice” means a notice under regulation 12A(1) or a hard bar date notice under regulation 12B or 12C; and

• “Objective A Achievement Notice” has the meaning given by paragraph 3(3) of Schedule 2.

Costs of making a claim

12F

• (1) Unless the court orders otherwise, every person who submits a relevant claim bears the cost of making the claim, including costs incurred in providing documents or evidence or responding to requests for further information.

• (2) “Relevant claim” means—

• (a) a claim for the return of client assets which is submitted in response to the setting of a bar date under regulation 12A, 12B or 12C; or

• (b) a claim in relation to a security interest asserted over, or other entitlement to, client assets, which is submitted in response to the setting of a bar date under regulation 12B.

Objective 2 – engaging with market infrastructure bodies and the Authorities

Continuity of supply

General powers, duties and effect

Appropriate regulator direction

Administrator's proposals in the event of Appropriate regulator direction

Revision of proposals in the event of Appropriate regulator direction

Appropriate regulator direction withdrawn

Responsibility for certain costs of the administration

19A

• (1) Where the administrator considers that relevant costs have been incurred in consequence of a failure by the investment bank to comply with client money rules or with any relevant requirement (“a default”), the administrator—

• (a) must seek the agreement of the creditors’ committee established under paragraph 57 of Schedule B1 (as applied by regulation 15) to the amount incurred in consequence of the default; or

• (b) if there is no creditors’ committee or the administrator is unable to agree that amount with the creditors’ committee, must apply to the court for an order fixing the amount.

• (2) On an application under paragraph (1)(b), the court may fix the amount incurred in consequence of the default or dismiss the application on the ground that there was no default or that no relevant costs have been incurred in consequence of the default.

• (3) Paragraph (4) applies where the creditors’ committee agree an amount incurred in consequence of the default or the court fixes an amount by order.

• (4) Notwithstanding any provision in insolvency rules prescribing how the expenses of the special administration are to be paid, responsibility for the relevant amount is assigned to the investment bank, and accordingly that amount is to be paid out of the investment bank’s assets.

• (5) Where the investment bank’s assets are insufficient to enable the relevant amount to be met out of those assets, paragraph (4) has effect only in relation to that part of the relevant amount which can be met out of those assets.

• (6) In this regulation—

• “relevant amount” means the amount of relevant costs incurred in consequence of the default as agreed by the creditors’ committee or fixed by the court;

• “relevant costs” means costs incurred by the administrator of applying the procedure set out in Schedule B1 (as applied by regulation 15 and as prescribed) for ascertaining particulars of the client assets held by the investment bank, and of taking custody and control and distributing those assets; and

• “relevant requirement” means any requirement relating to holding client assets contained in—rules made under Part 9A of FSMA (rules and guidance) which make provision relating to the handling of client assets, other than client money, held by a person who is authorised for the purposes of FSMA;Commission Delegated Regulation (EU) No. 231/2013 of 19th December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision; orCommission Delegated Regulation (EU) 2016/438 of 17th December 2015 supplementing Directive 2009/65/EC of the European Parliament and of the Council with regard to obligations of depositaries.

Successful rescue

Dissolution or voluntary arrangement

Special administration order as an alternative order

Disqualification of directors

Limited liability partnerships

Partnerships

Northern Irish equivalent enactments

Modifications and consequential amendments to legislation