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Proposals out on living wills

EMPLOYEES will be guaranteed the option of working out a notice period and clients promised swift access to their money in the event of a future high-profile investment bank failure, under the terms of proposed government legislation unveiled yesterday.

City minister Lord Myners launched the consultation paper on so-called “living wills” – measures for an orderly run-down of bank assets in the case of bankruptcy – at an event at Thomson Reuters in Canary Wharf.

The paper demands that banks make detailed plans for actions they would take in the event of failure. This would include keeping a running tally of information about their operations to be used by liquidators, as well as introducing an “insolvency proof contract” to ensure staff can continue in paid work for a fixed period after the bank’s failure.

Banks would be required to keep a “watching brief” by appointing one person with responsibility for dealing with client assets, ensuring that as much money as possible could be recovered in the event of a bankruptcy. The government is also considering whether to introduce a new body within the Financial Services Authority with responsibility for the return of client assets, with a decision expected in its final report next year.

Ministers are also examining options to help counterparties of failed investment banks, for instance extending protections enabling multilateral trading facilities (MTFs) to deal centrally with a bank default.

Myners said the measures would protect the City, adding: “A robust, vibrant and responsible financial sector is for the UK an international asset that should, and must, be cherished.”
Q & A : LIVING WILLS REPORT

WHICH FIRMS WILL BE AFFECTED BY THE NEW LIVING WILL PROPOSALS?
A.When the final report is launched, the new rules will affect all investment banks based in the UK, including subsidiaries of foreign banks.

WHO IS ADVISING THE GOVERNMENT ON THE PROPOSALS?
A.The government has so far received advice on the proposals from the likes of the Bank of England; the British Bankers’ Association; investment banks Goldman Sachs, Morgan Stanley and JP Morgan; law firms Clifford Chance and Linklaters; and accountancy firm KPMG.

WHAT IS THE NEXT STEP IN THE CONSULTATION PROCESS?A
A.The initial paper, entitled “Developing effective resolution arrangements for investment banks”, was published in May this year, and the paper is now entering its second phase of consultation. This is due to close on 16 March – just days before the possible general election date of 25 March. The government plans to make the concept of living wills mandatory in its Financial Services Bill, which is due to be passed next spring, if possible before the election. But it looks unlikely that Labour will manage to release its final detailed version of the report ahead of the public going to the polls.

WHAT IS THE OPPOSITION’S STANCE ON THE MATTER?
A.With opinion polls still firmly in the Conservatives’ favour for next year’s election, it is looking increasingly likely that Gordon Brown and Lord Myners will have to pass the buck for enforcing proposals for living wills onto their Tory counterparts David Cameron and shadow City minister Mark Hoban. But the party was yesterday unwilling to say whether it will look to build on the recommendations in the report when devising its own policies on the subject. Hoban would say only: “We are very much in support of the living wills concept but need to look at the detail.”