The Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017

Transfer of client assets

8.  After regulation 10A(1) insert—

“Objective 1—transfer of client assets

10B.— (1) This regulation applies where—

(a) the administrator, in pursuit of Objective 1 (whether or not also in pursuit of Objective 3) enters into a binding arrangement with another financial institution for the transfer to that institution (“the transferee”) of all or some of the property, rights and liabilities of the investment bank; and

(b) for the purposes of that transfer the arrangement includes provision for a transfer of client assets to the transferee or to a person who has undertaken to receive or hold any of the assets to the order of the transferee.

(2) This regulation is subject to the restrictions on partial property transfers in regulations 10C to 10G.

(3) The transfer of client assets which the investment bank has undertaken to hold under a client contract and of relevant rights and liabilities is to have effect in spite of any—

(a) restriction affecting what can or cannot be assigned or transferred by the investment bank (whether generally or by a particular person or particular description of persons);

(b) requirement to give notice to, or obtain the consent (however referred to) of, any person who is party to the client contract; or

(c) entitlement of any person to the return of the assets otherwise than by transfer under the arrangement.

(4) For these purposes it does not matter whether a restriction, requirement or entitlement has effect by virtue of a provision contained in a contract or an enactment, or in any other way, except that in paragraph (3)(a) a restriction does not include a restriction in client money rules.

(5) To the extent that rights and liabilities under a client contract are transferred by the arrangement, the contract is to be treated for the purposes of the arrangement as if it had been made by the transferee rather than the investment bank.

(6) The transferee may vary the terms of client contracts without obtaining the agreement of persons who are party to the contracts to the extent necessary for giving effect to the transfer and ensuring that the powers, rights and obligations of the transferee acting as a trustee are exercisable.

(7) Where necessary for the purposes of the arrangement the administrator may disclose to the transferee all information which is, in the administrator’s view, relevant to the transfer of client assets or rights and liabilities under client contracts.

(8) Subject to paragraph (9), paragraph (7) overrides any contractual or other requirement to keep information in confidence.

(9) Paragraphs (7) and (8) do not authorise a disclosure, in contravention of any provisions of the Data Protection Act 1998(2), of any personal data which are not exempt from the provisions of that Act.

(10) The arrangement must include such provision as the administrator thinks necessary to ensure that clients whose assets are to be transferred will be able to exercise their rights in relation to the assets as soon as reasonably practicable after the transfer.

(11) For the purposes of this regulation, if the arrangement purports to transfer all of the property, rights and liabilities of the investment bank, it is to be treated as having done so effectively (so that none of regulations 10C to 10G applies to it) notwithstanding the possibility that any property, right or liability purportedly transferred is foreign property and might not have been effectively transferred by the arrangement.

(12) In this regulation a reference to rights and liabilities of the investment bank or to rights and liabilities under a client contract, in relation to property held by the investment bank on trust (however arising), includes a reference to—

(a) the legal and beneficial interest of the investment bank in the property; and

(b) the powers and obligations of the investment bank acting as a trustee of the property.

(13) In this regulation—

“client assets” means client assets (within the meaning given by section 232(4) of the Act) and assets equivalent to those which the investment bank undertook to hold for clients;

“client contract” means a contract under which the investment bank undertook to—

(a)

receive or hold client assets; or

(b)

provide any services or enter into any transactions for the benefit of a particular client in relation to the investment bank’s holding of client assets for that client;

“partial property transfer” means an arrangement of a kind referred to in paragraph (1) for the transfer of some, but not all, of the property, rights and liabilities of the investment bank; and

“relevant rights and liabilities”, in relation to a client contract, means the rights and liabilities under the contract so far as they have effect in relation to any client assets which are to be transferred by the arrangement.

Restrictions on partial property transfers—general provision

10C.— (1) Regulation 10B has effect in relation to a partial property transfer as if paragraph (3)(b) of that regulation were omitted.

(2) Paragraph (1) does not apply in relation to the transfer of protected rights and liabilities (within the meaning given in regulation 10D(2)) or the transfer of any property, benefits, rights or liabilities to which regulation 10E, 10F or 10G applies.

(3) A partial property transfer must include such provision as the administrator thinks appropriate—

(a) to ensure that a client whose client assets are to be transferred by the arrangement will be entitled to demand a transfer back to the investment bank of assets which are transferred (“reverse transfer”);

(b) for the identification of assets for the purposes of a reverse transfer; and

(c) unless the investment bank has ceased to satisfy Condition 1 in section 232 of the Act (definition of “investment bank”), to ensure that the transferee is obliged to give effect to the reverse transfer as soon as reasonably practicable after the demand is made.

(4) The administrator must take all steps necessary to give effect to the reverse transfer.

(5) A reverse transfer has effect to transfer back to the investment bank the relevant rights and liabilities transferred by the arrangement so far as they have effect in relation to the client assets which are transferred back to the investment bank.

(6) In this regulation “client assets”, “partial property transfer” and “relevant rights and liabilities” have the meaning given in regulation 10B(13).

Restrictions on partial property transfers—set-off and netting arrangements

10D.— (1) A partial property transfer may not provide for the transfer of some, but not all, of the protected rights and liabilities between a client or other person (“C”) and the investment bank.

(2) Rights and liabilities between C and the investment bank are protected if—

(a) they are rights and liabilities which C or the investment bank is entitled to set off or net under a particular set-off arrangement, netting arrangement or title transfer financial collateral arrangement which C has entered into with the investment bank; and

(b) they are not excluded rights or excluded liabilities.

(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(3), except that in article 1(3), in the definition of “excluded rights”—

(a)

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; and

(b)

in sub-paragraph (f)—

(i)

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; and

(ii)

the 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)

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;

(b)

an arrangement which provides for netting (within the meaning given by regulation 2(1) of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999(4)); and

(c)

an 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(5));

“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(6)).

(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(7);

“deposit” has the same meaning as in article 5 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001(8), 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 or recognised clearing house; or

(c) the rules of a recognised investment exchange or recognised clearing house 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(9); and

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

(1)

Regulation 10A is inserted by regulation 7 of these Regulations.

(2)

1998 c. 29.

(3)

S.I. 2009/322, as amended by S.I. 2009/1826; 2013/472 and 2013/3115. There are other amendments, but they are not relevant to these Regulations.

(4)

S.I. 1999/2979. There are amendments, but they are not relevant to these Regulations.

(5)

S.I. 2003/3226. Regulation 3 was re-numbered regulation 3(1) by S.I. 2010/2993. There are other amendments, but they are not relevant to these Regulations.

(6)

Section 55A was substituted (together with the rest of Part 4A of FSMA) by the Financial Services Act 2012, section 11(2).

(7)

Schedule 2A was inserted by the Enterprise Act 2002 (c. 40), section 250(2) and Schedule 18, and was amended by S.I. 2003/1468.

(8)

S.I. 2001/544, as amended by S.I. 2002/682.

(9)

1989 c. 40. Section 188 was amended by S.I. 2009/853, 2013/504 and 2013/1908.