UK: The Investment Bank Special Administration Regime

Last Updated: 17 August 2017
Article by  

The collapse of Lehman Brothers in September 2008 highlighted deficiencies in applying the "normal" corporate administration regime to investment banks, in particular in protecting client assets. This led to the introduction of the investment bank special administration regime (SAR) in 2011, to facilitate the speedy return of assets belonging to clients held by a failed investment firm.

This guide was published in August 2017.

Following an independent review into the operation of the SAR, the Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017 (the 2017 Regs) came into force on 6 April 2017. The 2017 Regs aim to extend and strengthen the existing regime. Despite being an "investment bank" special administration regime, as a result of its focus on protecting client assets, the SAR has also applied to a wide range of other businesses including private client stockbrokers, foreign exchange traders and discretionary fund managers.

It is important for officeholders to understand the regime. Whilst there have been only 15 special administrations under the SAR since its introduction in 2011, including MF Global UK Limited and Worldspreads Limited, the SAR covers a much wider range of investment firms than its name suggests and has a number of notable features, particularly since its recent amendment.

The detailed workings of the SAR are set out in the Investment Bank Special Administration Regulations 2011 (the Regulations) and the Investment Bank Special Administration (England and Wales) Rules 2011 (the Rules). The Regulations and the Rules are not exhaustive, however - the regime interacts closely with the Financial Conduct Authority's (FCA) Client Asset Sourcebook (CASS) which sets out a detailed framework for the segregation and protection of client assets, including money, held by investment banks and CASS includes rules dealing with an investment bank's failure. Ordinary insolvency principles and other competing regulations will also be relevant. Where specific circumstances of a case do not fit neatly within the regime, flexible and creative solutions may be required and early advice should be sought.

Who does the regime apply to?

The SAR applies to an 'investment bank' - that is an institution incorporated in the UK which holds client assets and is authorised to carry on one of the following regulated activities:

  1. safeguarding and administering investments,
  2. dealing in investments as principal,
  3. dealing in investments as agent; and
  4. (after the 2017 Regs)managing an alternative investment fund (AIF) or an undertaking for collective investments in transferable securities (UCITS); or
  5. acting as trustee or depositary of an AIF or a UCITS.

So the SAR applies to a much wider range of investment firms than just 'banks' in the sense of deposit takers. In fact, where an investment bank is a deposit-taking bank, it may not be eligible for special administration: further rules as to its eligibility for the SAR apply, as against other specially designated 'bank' insolvency procedures.

The SAR has applied to a broad range of businesses, including private client stockbrokers, foreign exchange brokers and discretionary fund managers.

SAR appointment process

The appointment of a special administrator must be made by court order. As in a normal administration; the investment bank, its directors and/or creditors have standing to make a special administration application. In addition, the SAR provides the FCA, the Prudential Regulation Authority (PRA) and the secretary of state with the right to make a special administration application, together with a contributory of the investment bank in certain circumstances.

The regulator of the investment bank has the right under the SAR to be heard at the hearing of the special administration application. In practice, it is important to engage with the regulator at an early stage in the contingency planning process. The regulator will expect to be kept updated on the circumstances necessitating the application and will want to be satisfied that the proposed special administrators have the right experience and CASS expertise, either in-house or outsourced, for the appointment.

There is no absolute bar to an investment bank entering into an 'ordinary' administration or liquidation. However, the SAR provides the FCA with a right to two weeks' notice of any preliminary steps taken to place an investment bank into administration or liquidation and the right to apply for a special administration of that investment bank. It will be a rare case where a special administration is not the most appropriate process for an investment bank.

Nature of process

The SAR is modelled on a normal administration, with specific provisions to reflect the regime's aims. The Regulations adopt a number of provisions from the Insolvency Act 1986, including a substantial proportion of Schedule B1, for special administrations, with certain modifications.

Administration objectives

The objectives for a special administration are as follows:

  1. the return of client assets as soon as is reasonably practicable;
  2. the timely engagement with market infrastructure bodies and the Bank of England, the Treasury, the FCA and the PRA in accordance with the SAR; and
  3. either the rescue of the investment bank as a going concern or the winding up of the investment bank in the best interests of its creditors.

Unlike a normal administration, there is no hierarchy between these objectives. A special administrator must commence work on each objective immediately on their appointment, prioritising the objectives as they think fit in order to achieve the best result overall for clients and creditors. The Regulations include detailed provisions in respect of the objectives, particularly the first, and we discuss some of these below.

Features of the special administration regime

Perhaps most significantly, the SAR and the Rules make clear that the special administrators will take control of effectively two separate sets of assets and money, the treatment of which is separate but related. These are: client money and client assets held for clients on their behalf in accordance with the CASS rules; and firm money and assets, which are the property of the firm.

Features of the SAR include that:

  • it is the special administrators who have control of the distribution or transfer of client assets, and they are required to prioritise dealing with those assets;
  • the special administrators are required 'immediately after being appointed' to carry out a client money reconciliation, and – if the amount does not reconcile – to transfer from the office account to the client account (or vice versa) any amount required to make up the difference, as described in regulation 10H of the Regulations.
  • the appointment of special administrators triggers a primary pooling event under the CASS rules, which creates a pool of client money that falls outside of the insolvency regime. The return of such client money to clients is determined on the basis of the reconciliation, the client money in fact available, and is subject to deduction for costs properly attributable to its return.
  • the special administrators may set a bar date for claims to be submitted as to ownership or security over client assets. After that date, assets which have been returned are not affected by any later claims. The 2017 Regs now allow the special administrators in certain circumstances to return client assets without the need to first obtain court approval where a bar date has been set. It also provides for a hard bar date, after which the administrators may transfer unclaimed assets to the general estate.
  • the special administrators are required to prepare a distribution plan which deals with the return of client assets, and how expenses of the special administration may be allocated. It must be approved by the creditors' committee and the court, and distributions may be made only after three months have elapsed from the bar date.
  • the 2017 Regs have modified the distribution process to deal with issues which arose in the MF Global case. In that case, certain claimants in respect of client money had sought to maximise their returns by - instead of claiming for the return of client money (on which interest is not payable) - claiming as an unsecured creditor, including for interest. As a result of the 2017 Regs, a claimant is no longer permitted to claim for interest as an unsecured client where it has a client money claim, other than if there is a shortfall on such client money claim;
  • to ensure the return of client assets as soon as is reasonably possible, only costs, including remuneration and disbursements, which are 'properly incurred by the administrator in pursuing Objective 1', may be deducted from client assets. Any costs which do not relate to the pursuit of Objective 1 are recoverable only from the investment bank's own assets;
  • a creditors' committee may be composed of both creditors and clients. Its composition should reflect the interests in the outcome of the special administration. So if there is unlikely to be any or any significant return to unsecured creditors, then the committee should be composed of primarily clients. Additionally, the FCA is entitled to attend and make representations at any such committee meetings;
  • certain key suppliers to the investment bank, in particular suppliers of critical IT services, may not terminate supply, provided that the special administrators pay for the supply incurred after the commencement of the special administration.

What special administrators should look out for

The FCA will certainly expect regular and timely updates both pre and post appointment. Additional regulatory or other statutory entities should be kept informed where they have a potential interest in the outcome of the special administration. This may include: The Financial Services Compensation Scheme, HMRC, and The Pension Regulator.

The obligation to undertake a reconciliation immediately on appointment creates a potential issue where such a reconciliation is not possible: for example where access to critical IT infrastructure is removed prior to the commencement of the special administration. In that circumstance, it is necessary to obtain as part of the special administration order a direction that the special administrators will prioritise taking steps with a view to enabling them to carry out the reconciliation, and that it is carried out as soon as it becomes possible.

Even though an investment bank may have significant client assets under its control, its own assets, at least those immediately available to the special administrators, may be minimal.

The special administrators may be left with significant obligations, but only minimal funds available to pay their costs in circumstances where there may be a significant amount of work to be done which cannot be recovered from client assets (because it does not relate to Objective 1), including potentially pre-appointment work; or as a result of the obligation to transfer from firm assets an amount to make up a shortfall in client money.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.