Where there’s a will…

A centrepiece of the Government’s regulatory response to the credit crunch, outlined in the HM Treasury paper ‘Reforming Financial Markets’, is the idea that ‘investment firms’ should be obliged to produce a ‘recovery and resolution plan’, colloquially termed a ‘living will’. The aim is to simplify the regime for breaking up failed investment firms and thereby minimise systemic damage and delays in returning client assets, problems that were acutely highlighted by the collapse of Lehman Brothers. Jacqui Hatfield and Sebastian Barling of Reed Smith look at the proposals.

Jacqui Hatfield is a partner and Head of the Financial Services Advisory Group at Reed Smith LLP: +44 (0) 20 3116 2971, jhatfield@ReedSmith.com. Sebastian Barling is an associate at Reed Smith LLP: +44 (0)20 3116 2817, sbarling@reedsmith.com

Where are we now?

The legislation imposing the new living will requirement is contained in the Financial Services Bill, which, at time of writing, is entering its third reading in the House of Commons. The current draft of the Bill proposes amending the Financial Services and Markets Act 2000 (FSMA) to empower the FSA (in consultation with the Treasury and Bank of England) to develop rules in relation to these plans. The Treasury Consultation paper, ‘Establishing Resolution Arrangements for Investment Banks’, published in December 2009, contains further proposals on the resolution aspect of the plans, and the FSA’s ‘Turner Review Conference Discussion Paper’, published in October 2009, outlined the regulator’s thinking.