On 30 November 2018, HM Treasury published a draft of The Credit Institutions and Insurance Undertakings Reorganisation and Winding Up (Amendment) (EU Exit) Regulations 2018 together with an explanatory memorandum.
The draft statutory instrument is principally made under section 8 of the EU (Withdrawal) Act and is one of a number of statutory instruments that are designed to ensure that there is a stable and functioning UK financial services regulatory regime at the point at which the UK leaves the EU in March 2019, if an implementation period is not secured.
The Directives establish EU wide frameworks for the reorganisation and winding-up of credit institutions and insurance undertakings. The Directives were transposed into UK law through the Insurers (Reorganisation and Winding Up) Regulations 2004, the Credit Institutions (Reorganisation and Winding Up) Regulations 2004, and the Insurers (Reorganisation and Winding Up) (Lloyd’s) Regulations 2005.
The draft statutory instrument amends these regulations to address deficiencies arising from the UK’s withdrawal from the EU. Among other things the draft statutory instrument removes:
- the provisions that prohibit UK courts from making winding-up or administration orders against EEA credit institutions, insurance undertakings, investment firms and group companies;
- automatic recognition of EEA insolvency measures and that certain contracts or rights within a reorganisation or winding-up should be dealt with under the law of an EEA Member State; and
- certain notification, publication and language requirements that the regulations implement in line with the Directives.
The draft statutory instrument establishes that if a credit institution, insurance undertaking, investment firm or group company is subject, on exit day, to a Directive reorganisation measure or winding-up proceeding which started before 29 March 2019, the current law will continue to apply to that insolvency. However, this provision is subject to a safeguard which applies in circumstances in which a UK court determines that one of three pre-defined conditions are met: (i) that an ongoing EEA measure or proceeding will have an adverse effect on financial stability in the UK; (ii) that UK creditors would be materially prejudiced in comparison to creditors located in the EEA; or (iii) that continuation would be unlawful under section 6 Human Rights Act 1998. The draft statutory instrument also contains safeguarding provisions in relation to an ongoing EEA-led credit institution insolvency process which protect the operation of certain financial markets. These provide that an EU insolvency officer cannot take action in the UK that is inconsistent with the protections in the UK settlement finality and financial collateral framework.
The provisions of the draft statutory instrument do not apply to resolution actions which are ongoing at the time of the UK’s exit from the EU. HM Treasury has made transitional provisions for such actions in The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018.