24 July 2008
Consultation on proposals to amend Part 7 of the Companies Act 1989
This consultation sets out the Treasury's proposals to amend Part 7 of the Companies Act 1989. Part 7 modifies general insolvency law to protect clearing houses and exchanges recognised by the FSA in the event that one of their members defaults. These protections safeguard the integrity of financial markets, and public confidence in them, by minimising the disruption caused by a default. Since 1989, there have been significant developments in the markets for which Part 7 offers protection. Existing legislation does not reflect the range of contracts that are now cleared by central counterparties and does not explicitly recognise the use of 'default funds' which have become an important means for clearing houses and exchanges to offset losses of a defaulting member. The Treasury proposes to update the legislation to reflect developments in market practice and legal changes since 1989. The draft regulations are included in the consultation document.