The government is to consult on plans to introduce a special administration regime for systemically important payment and settlement systems in the event of insolvency.
The proposals are designed to ensure that the failure of a single financial system does not put the UK's overall financial stability at risk.
The new regime would apply to the operators of recognised inter-bank payment systems and securities settlement systems, and to key service providers to these firms.
Under the proposals, the overarching objective of the administration would be to maintain the firm's critical payment and settlement services so that it could continue to provide the required infrastructure, until it recovers or an alternative source of provision is available.
The special administration regime would differ from a normal insolvency procedure by giving the Bank of England (BoE) powers of direction over the special administrator, allowing the BoE to exercise a degree of control over the process and to advise the special administrator how best it can meet its financial stability objectives.
The proposals would give the special administrator the means to transfer all or part of the business to an acquirer on an expedited basis. There would also be restrictions on early termination of third party contracts to ensure that crucial third parties, such as service providers, do not terminate their contracts with a payment or settlement system solely because of its entry into the special administration regime.
The government's latest move follows last year's consultation Financial sector resolution: broadening the regime, which led to the introduction of resolution powers for central counterparties. Feedback from respondents indicated support for introducing similar powers for other types of financial market infrastructure.
Financial secretary to the Treasury, Greg Clark, said: 'Payment and settlement systems play a vital role in financial markets, providing the infrastructure which underpins financial transactions, but their failure has the potential to severely disrupt financial stability.
'The government is determined to ensure that no firm, of whatever type, threatens financial stability in the event of failure.
'The consultation is just the latest step in the government's efforts to learn the lessons of the past and to create a safer financial system for the future.'
The consultation period lasts for eight weeks, closing on 19 June 2013.
