Insolvency set-off – building societies

The Financial Markets Law Committee have published their December 2007 paper proposing that the mandatory insolvency set-off rule should be applied to building societies and incorporated friendly societies.   Insolvency Rule 4.90 doesn’t apply to them at present.  This leads to uncertainty in the financial markets when such entities are counter-parties because participants can’t provide clean legal opinions on transactions not being able accurately to analyse the credit risk. 

Delay on new Insolvency Rules

The Insolvency Service have said the timetable for introducing new Insolvency Rules that update the 1986 ones has slipped back to 1 October 2009.  The details are here. 

OFT credit card comparisons

The OFT has today published its report into the difficulty consumers have in comparing credit cards.  It makes a series of recommendations to help consumers choose a credit card, the most significant being the recommendation that the FSA offer a price comparison website.  The FSA have said they will include this on their “moneymadeclear” site.  The OFT will also work with APACS to make consumers more aware of their ability to shop around for cards.

Loan: was it residential? commercial?

The court has decided that a borrower who took out a loan on a property that was partly residential and partly commercial was a consumer.  This meant that in that particular case, the Unfair Terms in Consumer Contracts Regulations 1999 applied. The lender was unable to impose an early redemption penalty as it was held to be unfair. 

Evans v Cherry Tree Finance Ltd CA (Civ Div) 7 Feb 2008

Running onto the Rock?

Two items of interest to note in the aftermath of Northern Rock: the House of Commons Treasury Committee report that
analyses the causes and consequences of the run on Northern Rock and the publication by HM Treasury, the Financial Services Authority and the Bank of England of a consultation document outlining proposals “to strengthen the framework for financial stability and depositor protection.”  With the media cliche ringing in my ears, “We must ensure this will never happen again” (if only we really could control events as well as we kid ourselves ourselves we can), I see the report notes that “the directors of Northern Rock were the principal authors of the difficulties that the company has faced since August 2007. The directors pursued a reckless business model that was excessively reliant on wholesale funding. The Financial Services Authority systematically failed in its regulatory duty to ensure that Northern Rock would not pose a systemic risk” and suggests that the Tripartite (HMT, FSA and BoE) was inadequately prepared in advance for the announcement of the Government guarantee on Northern Rock deposits. 

It recommends:

• that a relevant authority be given power to acquire information relating to individual financial institutions and to take action in relation to an institution in specified circumstances;
• a special resolution regime for failing banks to enable smooth administration of such a bank to be combined with arrangements to ensure that insured deposits are safe and accessible;
• the establishment of a Deposit Protection Fund to be funded by participating institutions;
• that a single authority be given the new powers for handling failing banks (are we expecting a lot of them, then?), together with responsibility for the Deposit Protection Fund and proposes the creation of a new post of Deputy Governor of the Bank of England and Head of Financial Stability.

The consultation document follows up the report with legislative proposals to:

• strengthen the financial system with stronger bank risk management and “improved functioning of securitisation markets”;
• reducing the likelihood of banks failing by strengthening the regulatory and supervisory framework;
• reducing the impact of failing banks with “tools to resolve a failing bank in a more orderly manner” = the special resolution regime
• strengthening the Bank of England and improving coordination between authorities

Comments on the proposed framework outlined in the consultation document are asked for by 23 April 2008.  The Government intends to follow up this consultation by introducing legislation into Parliament later in this session.