The unsung partner
Resolving a failing bank, building society, insurer or other major financial firm is a collaborative exercise.
The lead rests with the Bank of England which, under the legislation passed in the wake of the 2008 financial crisis, has responsibility for overall resolution strategy and the approach to be used to resolve individual firms.
FCA has responsibility for any conduct issues that may arise.
HM Treasury has a continuing interest in financial stability and any implications for the public finances (though orderly resolution is designed to ensure the taxpayer is not called on).
And FSCS is, in effect, the delivery partner if the Bank of England decides that the best way to resolve a failing firm is to put it into insolvency and pay-out its depositors. FSCS then steps in to make that pay-out.
We can also be asked to contribute financially to other resolution options – a transfer of accounts to another bank or building society for example. That’s what happened when Bradford & Bingley failed in 2008.
But then there is also a less heralded fifth partner in a pay-out: namely, the insolvency practitioner (IP) appointed by the Bank of England to manage the affairs of a failed firm.
The relationship with the IP is, from FSCS’ point of view, critical to an orderly resolution and to the protection of consumers.
Central to this relationship is the provision of data.
In the case of a bank or building society failure, we rely on the IP to see to it that a fit-for-purpose Single Customer view (SCV) file is provided to us on time. This file, which contains information about the aggregate balances of all the failed firms’ depositors, underpins our ability to get people’s money back to them in seven days.
We have also worked with IPs in a number of recent credit union failures to identify vulnerable customers – customers receiving benefits, for example – for whom we’ve made special arrangements to maintain access to funds.
Accurate data are also the indispensable ingredient in many other failures.
For example, we are currently working closely with the Gibraltar-based liquidator of the Enterprise Insurance Company to complete the protection of policy holders. Because the company operated through a network of brokers and sub-brokers, we look to the IP to match and verify information from different sources to confirm the identities and entitlements of policy holders.
Thanks to the able cooperation we have received, we have been able to return premium payments to over 33,000 motor policy holders so far.
Similarly, in recent failures of broker/dealers such as MF Global and Alpari, it is to the IP that we have turned to confirm customers’ balances.
And, though information is the heart of the relationship, I can certainly foresee circumstances in which FSCS might seek an IP’s help in other respects. We might, for example, need to be able to access a failed firm’s own systems in order to compensate consumers in an efficient and timely way.
All this explains why we and the Bank of England seek to maintain an open dialogue with the IP community and jointly host an annual event for IPs. The last was in January here at FSCS.
The annual seminar is a chance for the Bank of England and FSCS to brief IPs on new developments. It enables all the partners to share experience of recent resolutions or near-things.
Above all, these regular gatherings help build the relationships which would be vital in the event of major failure. The one thing you can be sure of is that best laid plans would not survive contact with all the complexities and demands of a real resolution. It’s vital, therefore, that all the partners can have the mutual confidence which would enable us to adapt and improvise successfully.
I’m pleased to say that partnership with IPs is in excellent health.
The Financial Conduct Authority website includes a searchable database of all firms authorised and regulated by the FCA and the Prudential Regulation Authority (PRA).