Travers Smith Braithwaite in pioneering deal for CrestCo

Travers Smith Braithwaite has advised City of London systems operator CrestCo on the development of two risk-reducing projects. These have involved a dramatic change in company law and have hailed Crest as the safest transfer and payment system in the world.
Together with CrestCo's in-house team, Travers Smith has provided the legal advice for the introduction of electronic transfer of title and payment in central bank money, which were both launched in the City last Monday (26 November).
Both of the structural changes were developed to reduce unprecedented risks and to increase market confidence in the system, which now sees the transfer of around £200bn of securities and payments every day.
The Travers Smith team was led by Margaret Chamberlain and Mark Evans, while CrestCo's team was led by Alastair Fitzsimons, Mark Kirby and general counsel Niul Dillon Hatcher.
Before the introduction of electronic transfer of title there was a gap of up to two hours between the buyer receiving equitable title and receiving full legal title. The new structure means that full title and membership is received immediately, which means before the company is notified.
In order for these changes to take place the Treasury had to modify company laws and set up a new statutory regime, the Uncertificated Securities Regulations 2001.
Chamberlain said: “This is a remarkable example of innovative infrastructure and now we probably have the best international standards for the delivery of title. Crest is very important in the attraction of foreign business and therefore the perception of its infallibility has a huge commercial impact on UK plcs.”
The second development, central bank money, is a joint venture between CrestCo and the Bank of England, and is designed to improve the quality of payment.
The settlement bank of the buyer is obliged to make a payment to the settlement bank of the seller from the moment of transfer. In practice, this does not take place until the end of the day, which, in principle, leaves the settlement bank of the seller exposed to intra-day insolvency of the settlement bank of the buyer.
The new structure effectively removes the role of the settlement banks and obliges the Bank of England to make the payment from the moment of settlement.
Evans said: “The risk is enormous because of the values of money, and it would be the Crest members that suffer. The Bank of England has responsibility to oversee the payment systems in the UK and therefore it has a regulatory interest in insuring that the payments are robust.”
Travers Smith has been CrestCo's sole legal adviser in the UK since Crest was sold to the company in 1993. Crest was originally developed by the Bank of England.
A team from Freshfields Bruckhaus Deringer, led by Guy Morton and Michael Raffan, advised the Bank of England. Ian Annetts at Allen & Overy acted for the settlement banks.
There are only a few UK firms that advise on securities settlement systems. Slaughter and May advises Euroclear and Clifford Chance advises the London Clearing House.
Travers Smith also advised the stock exchange on the Crest's ill-fated predecessor Taurus.