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12 UK PN - Banking - Managingfinancialfailure PDF
12 UK PN - Banking - Managingfinancialfailure PDF
12 UK PN - Banking - Managingfinancialfailure PDF
In partnership with:
Forewarned is forearmed:
understanding the UK insolvency framework and financial
institution client and creditor landscape in the event of
further failure, locating the pressure points and the pros
and cons of early action
steps to consider now; what to expect on day 1; and what
to do on day 1
Company
Voluntary
Arrangement
Dissolution
Scheme of
Arrangement
UK Corporate
Insolvency
Processes
Liquidation
Administration
Receivership
Insolvency laws:
SAR - Scope
Who is within Scope?
Those with permission under Part 4 of FSMA 2000 to carry on at
least 1 of:
safeguarding and administering investments;
dealing in investments as principal;
dealing in investments as agent; and
Those who hold client assets (to include client money n.b. except
money held related to insurance mediation which is not part of
investment activities); and
Those incorporated in, or formed under the law of, the UK
(eg MF Global UK but not MF Global US; e.g not a branch of non-UK
firm carrying out business in UK)
2012 Baker & McKenzie 23
Categories of client/creditor
Segregated clients (contributors to CMP)
Shortfall risks
Third party failure (e.g., affiliated bank)
Identifying client money
Alternative approach
Claims from non-contributors
Segregated clients (non-contributors)
Creditors with a claim to be clients
Client assets
Investment Bank Special Administration Regulations 2011
Ability to set a bar date
Assets can be distributed free from risk of competing
claims
Regulation 12
Pro rata distribution of assets held in omnibus account,
where there is a shortfall
Contrast with Lehman
Scheme of arrangement
2012 Baker & McKenzie 50
Conclusions
Client money
pressure to act and distribute promptly but
old problems resurface
Client assets
an improved framework
Forewarned is forearmed:
Lessons learned
2012 Baker & McKenzie 52
Lessons Learned
Pre-Administration:
Understand your Agreements
Exposure to Third Parties
Exposure to Other Jurisdictions
Post-Administration:
The day after
Monitoring the Administration Process
Courses of Action
Clause 17(h):
Any surplus on a sale or closing out after exercising our rights under these
Terms belongs to you and we will treat it as client money. Accordingly if we
default while still holding it will be pooled with our other client money for the
benefit of all our customers and you will share rateably with them in the pool.
2012 Baker & McKenzie 56
Summary
Custody
Prime Brokerage
Red Flags
Protective Measures
Rehypothecation : risks
Assess excluded from rehypothecation
Client money prohibition
Use of third party custodian
Limitation of secrecy
Courses of Action
Bilateral Communications
Submitting a claim How and What should you submit?
Can you make a claim in the client money pool if you are
not segregated?
Creditors committee
Should you attend court hearings?
Can you become a respondent?
Should you initiate a court application?
Can you have recourse against other parties (e.g.,
advisors, brokers etc)
2012 Baker & McKenzie 62
Regulatory
Update
2012 Baker & McKenzie 63