My Lords, these amendments establish a special administration regime that will apply to operators of recognised interbank payment systems, operators of securities settlement systems and crucial service providers to those operators.
The establishment of this new administration regime, to be known as financial market infrastructure—FMI—administration, is the latest in a series of measures that this Government are bringing forward to ensure that the failure of a single financial institution is not allowed to put UK financial stability at risk.
Underpinning the financial sector are a number of critical pieces of infrastructure that, if allowed to fail, could severely disrupt markets and the normal functioning of the wider economy. The need to ensure that some of these systemically important pieces of infrastructure continue to operate in times of crisis has already been addressed in legislation passed by this Government. However, there remain other pieces of systemically important market infrastructure that have not yet benefitted from statutory provision designed to ensure continuity of service in times of crisis. With that in mind, the amendments forming Part 6 have been tabled in order to ensure the continuity of service provision of recognised interbank payment systems, which facilitate or control the transfer of money between banks and building societies, and securities settlement systems, which enable the title to units of securities to be transferred electronically. These systems are integral to the efficient operation of the financial system, processing transactions worth hundreds of billions of pounds a day. As things stand, in the event that the operator of an inter-bank payment system or securities settlement system was to become insolvent, it would be likely to enter the normal administration procedure. In such cases, the administrator would be under a duty to look after the interests of the company’s creditors, without concern for implications for the wider economy. In these circumstances, the continued operation of crucial payment and settlement services could be threatened.
Part 6 introduces a special administration regime, known as FMI administration, which prioritises continuity of critical service provision during administration. The key features of this administration are the appointment of a special administrator, who will have an overarching objective to continue critical services during administration; the Bank of England’s ability to apply to a court to place a relevant company into FMI administration with the court appointing the FMI administrator—no-one else will be able to institute insolvency proceedings against one of these firms without giving the Bank prior notice; the Bank of England’s power of direction over the FMI administrator; the availability of powers allowing for the property, rights and liabilities of the relevant company to be transferred; and restrictions on early termination of third party contracts.
In addition to operators of relevant systems, FMI administration will also be available in respect of companies that the Treasury designates as crucial service
providers to the operators of the relevant systems. Service providers will be designated if the Treasury is satisfied that an interruption in the provision of services would have a serious adverse effect on the effective operation of the relevant system. Insolvency rules made under the powers in Part 6 will be made in due course. These will prescribe certain procedural details relating to the conduct of FMI administration. Different rules will be made in respect of England and Wales, Scotland and Northern Ireland. Any rules made under this power that apply to England and Wales will need to be cleared by the Insolvency Rules Committee before the Lord Chancellor may proceed to make them.
We believe that the likelihood of these powers ever being needed is extremely small. However, if an interbank payment system did get into financial difficulty, it would clearly be in the interests of financial stability that it was able to continue in operation as its financial problems were resolved. The special administration provisions in these amendments would allow this to happen, and I therefore commend them to the House.