UK Special Insolvency Regime for Payment and Electronic Money Institutions prioritises return of customer funds

A special administration regime for Payment and Electronic Money Institutions (PIs and EMIs) was established in The Payment and Electronic Money Institution Insolvency Regulations 2021 (the Regulations). 

In its consultation on the Regulations, the Financial Conduct Authority ('FCA') highlighted that PIs' and EMIs' insolvency proceedings were failing to return funds to customers promptly. The Regulations give insolvency practitioners an expanded insolvency toolkit to prioritise the return of customer funds. The Regulations also require practitioners to engage with the FCA from the outset.

The Regulations

The grounds for applying for an order under the Regulations depend on the type of creditor making the application. The application must establish that the PI/EMI is unable to pay its debts, or there must be a compelling fairness justification for putting the PI/EMI into special administration. 

Once appointed, the special administrators must seek to achieve the three objectives:

• Objective 1: to ensure the return of relevant funds as soon as is reasonably practicable.

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

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

The FCA retains the power to direct the special administrators to focus on one objective if that is deemed to protect the stability of the financial sector.

There have been five special administrations under the Regulations, including Silverbird Global Limited, on which Taylor Wessing acted. That application required meaningful engagement with the FCA from the outset, which assisted in obtaining the order as a result. 

FCA consults with IPs

The FCA has recently published a consultation on proposed amendments to its guidance on how insolvency practitioners should approach regulated firms. The FCA has welcomed views on the proposed amendments by 30 April 2024. The amended guidance will assist practitioners in navigating communications with the FCA, particularly when seeking an order under the Regulations. More on this here.

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.