Consultation on insolvency changes for electronic payment institutions extended

The Treasury has extended by a week the consultation period on proposed insolvency changes for payment institutions (PIs) and electronic money institutions (EMIs), which include establishing a new special administration regime (SAR)

The move is in response to findings from last year’s Payments Landscape Review, which noted a number of failing in the existing insolvency process for consumers using PIs and EMIs, such as card, mobile and electronic wallets. 

Recent administration cases involving PIs and EMIs have taken years to resolve in some cases, with customers left without access to their money for prolonged periods and receiving reduced monies after the cost of distribution. In six recent cases of PIs and EMIs in insolvency proceedings (of which three started in 2018), only one has so far returned funds to customers.

To address these shortcomings, the government proposes introducing a bespoke SAR for PIs and EMIs, which will be modelled on the Investment Bank SAR introduced in 2011 following the insolvency of Lehman Brothers, but with some additional features.

The new SAR will have an explicit objective on the special administrator to return customer funds as soon as reasonably practicable, as well as a bar date for client claims to be submitted to speed up the distribution process.

There will be a mechanism to facilitate the transfer of customer funds to a solvent institution, and a post-administration reconciliation to top-up or drawdown funds to or from the safeguarding process.

In addition, the SAR will have provisions for continuity of supply to minimise disruption, along with rules for treatment of shortfalls in the institutions’ safeguarding accounts and rules for allocation of costs. There will be an explicit objective on the special administrator for timely engagement with payment systems and authorities.

The new regime will not apply to institutions which are credit institutions, credit unions, or municipal banks. The special administration (bank insolvency) orders and special administration (bank administration) orders in the Investment Bank SAR will also not be extended to the PI and EMI SAR. PIs and EMIs are not able to undertake deposit taking services and therefore will not be subject to the bank insolvency or bank administration procedures.

The consultation closes on 21 January.

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