The Banking Act 2009 (Third Party Compensation Arrangements for Partial Property Transfers) Regulations 2009

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations are made under the Banking Act 2009 (c.1) (“the Act”).

The Regulations specify provisions which must, or which may, be included in a third party compensation order made in accordance with section 59 of the Act in the case of a partial property transfer (as defined by section 47 of that Act) (“a third party compensation order in relation to a partial property transfer”). These Regulations relate in particular to the treatment of those who were creditors of a banking institution immediately before a partial property transfer took effect (“pre-transfer creditors”).

Regulation 2 sets out the cases in which the Regulations apply.

Regulation 3 provides that a compensation scheme order or resolution fund order made in relation to the cases in which these Regulations apply must include provision for a third party compensation order. Such an order must comply with the provisions of these Regulations.

Regulation 4 provides that a third party compensation order in relation to a partial property transfer must provide for the appointment of an independent valuer to determine whether pre-transfer creditors should be paid compensation and if so, what amount is to be paid.

Regulation 5 provides that the third party compensation order in relation to a partial property transfer must require the independent valuer to assess the treatment actually received by pre-transfer creditors and the treatment they would have received had the banking institution entered insolvency. If the independent valuer determines that the actual treatment received by pre-transfer creditors is less favourable than the insolvency treatment pre-transfer creditors would have received, he must determine that compensation is payable. The amount of compensation is to be determined by the independent valuer by reference to the fair and equitable value of that difference in treatment.

Regulation 6 provides that a third party compensation order in relation to a partial property transfer must either specify what insolvency process the independent valuer should apply for the purposes of assessing the insolvency treatment or that the independent valuer must determine which insolvency process it is likely that the banking institution would have entered had the relevant order or instrument not been made.

Regulation 7 makes provision for the valuation principles which the independent valuer must apply.

Regulation 8 provides that a third party compensation order in relation to a partial property transfer must include a provision enabling the independent valuer to make provision for payments to be made on account of compensation to be payable under the order.

Regulation 9 provides that a third party compensation order in relation to a partial property transfer must require an independent valuer to have regard to information provided by a pre-transfer creditor which is relevant to the exercise of the independent valuer’s functions under the order.

Regulation 10 provides that a third party compensation order in relation to a partial property transfer may make provision as to the assumptions the independent valuer must make as to how certain property of the banking institution would have been treated under an insolvency process.

A full Impact Assessment of the effect that this instrument will have on the costs of business and the voluntary sector has been prepared. It may be obtained from the Banking Reform Team, HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ. It is also available on HM Treasury’s website (www.hm-treasury.gov.uk) and is annexed to the Explanatory Memorandum published alongside this instrument on the OPSI website (www.opsi.gov.uk).