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Corporate Review

By Partners at BDO

MF Global - Is the Special Administrative Regime working?

Thursday, 22 December 2011 Written by 
MF Global - Is the Special Administrative Regime working?Is the Special Administrative Regime (SAR) achieving its goal and should the special administrators be given more power to ensure that some of the problems encountered  in handling the collapse of MF Global be prevented?

Is the Special Administrative Regime (SAR) achieving its goal and should the special administrators be given more power to ensure that some of the problems encountered  in handling the collapse of MF Global be prevented?


It has been nearly three months since the collapse of MF Global which has seen the first use of the Special Administrative Regime (“SAR”). The SAR was born in February this year following the collapse of Lehman Brothers and has different objectives to a normal insolvency in that it sets three key objectives for the administrator; making a swift return of client assets; timely engagement with authorities; and to rescue the business as a going concern, or to wind it up in the best interests of the creditors

The SAR also works differently to normal insolvency practice in that it is only applicable to financial services businesses, with the key aim being to return customers' assets quickly and efficiently.

Despite much hard work by the Administrator for MF Global (the Administrators have said they have managed to salvage £594m representing 82% of segregated funds, with an estimated £200m yet to collect) there still seems to be some disappointment by the amount of time taken to return assets to customers, especially following the announcements in the US by the SIPA Trustee in relation to the segregated funds of MF Global Inc.

In a letter dated 23 November 2011, the Special Administrators wrote to all known clients stating that their communication had been “rather one way and limited in content” and also acknowledged “the inevitable frustration and concern caused”.  Despite the new SAR, the Special Administrators have encountered a number of problems in ensuring the swift return of client assets, namely:

• The number of “breaks”, unrecognised items and open positions to resolve • Systems being deactivated by third parties • Lack of required visibility from exchanges and clearing houses on liquidated positions and balances held on a both segregated and non-segregated basis • Lack of control over the vast majority of monies or assets • The amount of time taken to operate the FSA’s client money rules and the special administration regime rules on segregated client assets.

So, is the SAR achieving its goal and should the special administrators be given more power to ensure that some of the problems encountered can be prevented? Many are arguing that whilst the SAR has helped, further powers should be granted to the special administrators to ensure the swift return of client assets.

On the one hand, despite some delays, MF Global’s Administrator has argued that the SAR could allow for quicker and, sometimes, more substantial return to creditors.

However, other practitioners are concerned that the new arrangement in financial services to protect customers is unfair to other creditors and outside normal insolvency case law which expects all creditors to be treated equally.

The Financial Services Authority, the government and even the insolvency profession are now focused on the success of the SAR to assess if it is a viable alternative for investment corporate administrations, or if the UK should continue to use the regular process.

Clients of MF Global UK have expected many of the learning points on the Lehman administration to have been taken into account already, although the Supreme Court directions on how to deal with various issues in relation to client money is still to be issued. The Supreme Court Justices indicated that the judgment is likely to take some time, which could take up to six months or more before being handed down.

Whatever happens on the MF Global SAR, the action points arising need to be swiftly taken into account to ensure that the improvements are made before the next time the regime is needed.

Tim Kirk

Tim is Head of Financial Services for BDO and leads the BDO’s UK Financial Services Advisory Practice, which provides specialist risk, regulatory, internal audit, technology assurance and management consultancy support across the financial services sector.

Tim international experience is based on advising his clients’ senior management teams on emerging issues in relation to strategic, customer and reputational risk. This includes helping clients to develop approaches to respond to globally increasing and more intrusive consumer protection regulation in ways that meet regulatory requirements whilst also delivering positive outcomes for the business and for customers.


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