In EMIs, PIs, Regulations

Following HM Treasury’s consultation earlier this year, Payment and Electronic Money Institution Insolvency Regulations 2021 (“the Regulations”) were adopted in the UK and entered into force on 8 July 2021. The regulations introduced a new special administration regime for payment and e-money institutions. They are intended to help protect customers in the event of insolvency of a payment institution or e-money institution by establishing a new special administration regime. The regulations can be accessed here.

On 22 October 2021, further legislative developments took place on this topic, as the Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021 were published and can be accessed here. These Rules, which enter into force on 12 November 2021, set out the procedure for the Payment and Electronic Money Institution Special Administration process established in the above-mentioned Regulations.

The main features of the Payment and Electronic Money Institution Special Administration process are that:

  1. the payment or electronic money institution enters the procedure by court order;
  2. the order appoints an administrator;
  3. the administrator is to pursue the special administration objectives [with the exception of Objective 1 (see below) in certain cases] in accordance with the statement of proposals approved by the meeting of creditors and customers or, in certain circumstances, the Financial Conduct Authority (FCA).

In other respects, the procedure is similar to administration under Schedule B1 of the Insolvency Act 1986, subject to modifications and the inclusion of certain liquidation provisions of that Act.

The Rules are based on the Investment Bank Special Administration (England and Wales) Rules 2011 and the rules applicable to administration set out in the Insolvency Act 1986. Many of these existing rules have been applied with little or no modification. These Rules also take into account some of the modernisation to insolvency proceedings contained in the Insolvency (England and Wales) Rules 2016. Certain bespoke rules have also been introduced specifically to facilitate the achievement of the unique objectives of the special administration procedures set out in the Regulations.

The Regulations created a new special administration regime for payment and electronic money institutions, in order to facilitate a faster and more efficient return of funds to customers in the event of insolvency. Under the Regulations administrators are required to pursue the following special administration objectives:

Objective 1 is to ensure the return of relevant funds as soon as is reasonably practicable;

Objective 2 is to ensure timely engagement with payment system operators, the Payment Systems Regulator and the Bank of England, HM Treasury and the FCA; and

Objective 3 is to either rescue the institution as a going concern or wind it up in the best interests of the creditors.

If you would like to discuss how the above topics or to consider how they affect your company, please do not hesitate to contact us.