Question to the HM Treasury:

To ask Her Majesty's Government, further to the Written Answer by Lord Bates on 8 May (HL7245), whether the costs of the Investment Bank Special Administration Rules can be taken from an individual's ISA or self-invested personal pension; and if so, whether that ISA or self-invested personal pension can be subsequently rebuilt and reimbursed to the previous level.

The investment bank special administration regime (SAR) applies to a broad range of businesses which are authorised by the FCA to hold client assets. The SAR aims to reduce the impact of an investment firm insolvency, and has a statutory objective to return client assets as soon as is reasonably practicable.

The SAR rules set out that client assets may be used to pay expenses which the administrator has properly incurred in ensuring client assets are returned. Under the rules, the administrator prepares a distribution plan which sets out how client assets will be returned, and how the administrator proposes the expenses of the special administration are to be allocated between clients. This plan must be approved by the creditors’ committee and then by the Court. The administrator is also required to produce progress reports on the administration. Under the SAR, relevant parties have the right to make an application to the Court if they consider that the administrator’s remuneration is excessive.

Individual Savings Accounts (ISA) are tax-advantaged personal savings accounts. Where a firm managing an ISA becomes insolvent, cash or stocks and shares ISAs are treated like any other client assets held by the firm. The treatment of self-invested personal pensions (SIPPs) in insolvency depends on how the SIPPs are held at the particular firm and what services that firm provides in relation to the SIPP. If the SIPP assets are held by the investment firm as custody assets, then the costs of their distribution may also be deducted from these assets in the special administration.

In the event of insolvency, and depending on the circumstances and eligibility, compensation under the Financial Services Compensation Scheme (FSCS) may be available for ISA and SIPP investments up to the relevant limit. ISA rules allow for any compensation to be reinvested outside annual ISA limits in order to protect the saver’s tax advantages.