1. As stated in SUP 6.2.9 G, where a bank, or other firm with permission that includes accepting deposits, wishes to cancel itsPart IV permission, it will generally need to apply for a variation of that permission while it winds down its business.
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2. When a firm is winding down its business activities, it may be appropriate to vary its Part IV permission by imposing:
(1) a limitation that no new deposits will be accepted; or
(2) a limitation on the purchasing of investments for its own account; or
(3) requirements concerning solvency.
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3. After a bank has discussed with the FSA the type of variation of Part IV permission the bank requires to wind down its business, it should make an application for variation of Part IV permission as directed in SUP 6.3.15 D and follow the guidance and procedures in SUP 6 as well as the additional procedures set out in this annex.
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4. The FSA may vary the firm's Part IV permission to impose one or more of:
(1) a requirement that the firm takes certain steps or refrains from adopting or pursuing a particular course of action or to restrict the scope of its business in a particular way;
(2) a limitation on accepting deposits, for example a limitation that no new deposits will be accepted;
(3) a requirement restricting the granting of credit or the making of investments;
(4) a requirement prohibiting the firm from soliciting deposits either generally or from persons who are not already depositors.
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5. The information concerning the circumstances of the application for variation of Part IV permission and the confirmations a firm is required to give to the FSA will differ according to the nature of the bank and itsPart IV permission. If appropriate, it may include, but will not necessarily be limited to:
(1) a plan containing the arrangements made in respect of the business of any current depositors, for example how and when the firm intends to repay or novate arrangements with depositors; or
(2) confirmation that the bank will not take any new deposits, will not roll over or renew any existing deposits at maturity and will repay all remaining deposits (including accrued interest) as they fall due for repayment
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Dealing with residual deposits: general
6. Where a firm has residual deposits which, for whatever reason, cannot be repaid, they may be protected by a number of different methods. The precise applicability of the courses to be followed depends upon the particular circumstances of the individual firm. The FSA's supervisory approach will be determined by the course of action taken.
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Holding funds on trust
7. In some circumstances, it may be appropriate for the firm to make an irrevocable transfer of funds, at least equal to the total of its deposits, to an independent trustee to be held on trust for the benefit of the depositors. Any such proposal should be discussed in advance with the FSA. The amount of funds held on trust should at all times exceed the total of all deposits, in order to provide for contingencies. Trust account arrangements are appropriate only in respect of solvent institutions. The guidance in paragraph 13 of this section applies in most cases.
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8. (1) A plan containing the arrangements should be made by the firm in respect of the business of any current depositors, for example how and when the firm intends to repay or novate arrangements with depositors.
(2) The trustee should be an independent and appropriately qualified third party, nominated by the institution and acceptable to the FSA.
(a) The trustee should usually be a major UK bank. If appropriate, an additional trustee from within the institution may be appointed, preferably in an advisory role. An internal trustee may help to ensure continuity if the firm and the trust are likely to remain in existence for the foreseeable future.
(b) The FSA should be consulted about, or pre-notified of, a potential change of trustee.
(c) Trustees are responsible for fulfilling their obligations under the trust deed. In practice, the FSA may wish to point out that certain factors need to be given consideration by the trustees and the institution (for example, the procedures for paying out to depositors).
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9. The FSA would require to see an opinion by the firm's legal advisers, confirming the validity and enforceability of the trust and in particular specifying the extent (if any) to which the trust arrangements may be set aside in future. The FSA reserves the right to request sight of the proposed trust documentation itself.
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10. The trustee has the right (and probably the obligation) to invest the funds, and in doing so should normally seek to "match" the maturity profile of the firm's deposit base. However, the following could result in deposit liabilities exceeding trust funds at any time:
(a) maturity mismatches, that is, whether there are insufficient liquid funds across the maturity bands to repay depositors; or
(b) changes in interest rates; or
(c) the trustee's fees and disbursements.
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11. The trustee should not deposit, or otherwise invest, trust funds except in segregated accounts with third-party authorised institutions.
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(1) An auditor's report, similar to that used to determine whether all the deposits have been repaid by a firm, should be provided to confirm that all depositors have been repaid before the discharge of a trust is allowed.
(2) Auditors' reports, from the trust's auditors, should subsequently be obtained at intervals to demonstrate that funds in the trust continue to be at least equal to the remaining liabilities to depositors and that repayments have been properly made. The firm retains the ultimate responsibility to provide information to theFSA.
(3) The FSA may, however, require the inclusion of a clause in the trust deed requiring the trustee to provide such information as may be requested.
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12. Entering into a trust arrangement does not "transfer" deposits or discharge the firm's contractual obligations to its depositors.
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Holding the funds in segregated accounts
13. The firm may place and retain an amount at all times at least equal to its deposit liabilities in a segregated account with its usual bankers. The advantage of this course of action is that if all deposit liabilities are matched by funds in such an account, then the firm is not carrying on the regulated activity of accepting deposits in contravention of the Act.
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14. Placing funds in a segregated account does not discharge a firm's contractual obligations to its depositors.
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