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Banking Act 2009 2009 c. 1 An Act to make provision about banking. [12th February 2009] Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
Propose a change(1) The purpose of the special resolution regime for banks is to address the situation where all or part of the business of a bank has encountered, or is likely to encounter, financial difficulties. (2) The special resolution regime consists of— (a) the five stabilisation options, (b) the bank insolvency procedure (provided by Part 2), and (c) the bank administration procedure (provided by Part 3). (3) The five “stabilisation options” are— (a) transfer to a private sector purchaser (section 11), (b) transfer to a bridge bank (section 12), (ba) transfer to an asset management vehicle (section 12ZA), (c) the bail-in option (section 12A), and (d) transfer to temporary public ownership (section 13). (4) Each of the five stabilisation options is achieved through the exercise of one or more of the “stabilisation powers”, which are— (za) the resolution instrument powers (sections 12A(2) and 48U to 48W), (a) the share transfer powers (sections 15, 16, 26 to 31 and 85), and (b) the property transfer powers (sections 33, 41A and 42 to 46). (c) the third country instrument powers (sections 89H to 89J). (5) Each of the following has a role in the operation of the special resolution regime— (a) the Bank of England, (b) the Treasury, (c) the Prudential Regulation Authority, and (d) the Financial Conduct Authority. (6) The Table describes the provisions of this Part. Sections | Topic Sections 1 to 3 | Introduction Sections 3A and 3B | Pre-resolution powers Sections 4 to 6 | Objectives and code Sections 6A to 6D | Mandatory write-down, conversion etc of capital instruments Section 6E | Valuation before mandatory write-down or stabilisation action Sections 7 to 10 | Exercise of powers: general Sections 11 to 13 | The stabilisation options Sections 14 to 32 | Transfer of securities Sections 33 to 48A | Transfer of property Sections 48B to 48WA | Bail-in option Sections 48X and 48Y | Replacement of provisional valuation Section 48Z | Termination rights etc Sections 49 to 62 | Compensation Section 62A | Independent valuer Sections 62B to 62E | Resolution administrator Sections 63 to 75 | Incidental functions Sections 76 to 81A | Treasury Sections 81B to 83 | Groups Sections 83ZA to 83Z2 | Information and enforcement Section 83A | Banks not regulated by the PRA Sections 84 to 89 | Building societies, &c. Section 89A | Investment firms . . . | . . . Sections 89H to 89J | Third-country resolution actions Section 89JA | Resolution of UK branches of third-country institutions
Propose a change(1) In this Part “bank” means a UK institution which has permission under Part 4A of the Financial Services and Markets Act 2000 to carry on the regulated activity of accepting deposits (within the meaning of section 22 of that Act, taken with Schedule 2 and any order under section 22). (2) But “bank” does not include— (a) a building society (within the meaning of section 119 of the Building Societies Act 1986), (b) a credit union within the meaning of section 31 of the Credit Unions Act 1979 or a credit union within the meaning of Article 2(2) of the Credit Unions (Northern Ireland) Order 1985, or (c) any other class of institution excluded by an order made by the Treasury. (3) In subsection (1) “UK institution” means an institution which is incorporated in, or formed under the law of any part of, the United Kingdom. (4) Where a stabilisation power is exercised in respect of a bank, it does not cease to be a bank for the purposes of this Part if it later loses the permission referred to in subsection (1). (5) An order under subsection (2)(c)— (a) shall be made by statutory instrument, and (b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament. (6) Section 84 applies this Part to building societies with modifications. (7) Section 89 allows the application of this Part to credit unions. (8) Section 89A applies this Part to investment firms with modifications. (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) Section 89JA applies this Part to UK branches of third-country institutions with modifications.
Propose a change(1) In this Part— “Additional Tier 1 instruments” means capital instruments that meet the conditions laid down in Article 52(1) of the capital requirements regulation (or which qualify as Additional Tier 1 instruments by virtue of Chapter 2 or 4 of Title I of Part Ten of that regulation), “bail-in liabilities”, of an undertaking, means liabilities and capital instruments that— do not qualify as Common Equity Tier 1 instruments, Additional Tier 1 instruments or Tier 2 instruments, of the undertaking, and are not excluded liabilities listed in section 48B(8), “the capital requirements regulation” means Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26th June 2013 on prudential requirements for credit institutions and investment firms, as it forms part of assimilated law, “CRR rules” has the meaning given in section 144A of the Financial Services and Markets Act 2000, “client assets” means assets which an institution has undertaken to hold for a client (whether or not on trust, and whether or not the undertaking has been complied with), “Common Equity Tier 1 instruments” means capital instruments that meet the conditions laid down in Article 28(1) to (4), or 29(1) to (5) ... of the capital requirements regulation (or which qualify as Common Equity Tier 1 instruments by virtue of Chapter 2 of Title I of Part Ten of that regulation), “critical functions”, subject to subsections (2) and (2A), means activities, services or operations (wherever carried out) the discontinuance of which is likely ...— to lead to the disruption of services that are essential to the economy of the United Kingdom, or to disrupt financial stability in the United Kingdom, due to the size, market share, external and internal connectedness, complexity or cross-border activities of a bank or a group which includes a bank (with particular regard to the substitutability of those activities, services or operations),; “FSCS” means the Financial Services Compensation Scheme (established under Part 15 of the Financial Services and Markets Act 2000); “normal insolvency proceedings” means the collective insolvency proceedings which— entail the partial or total divestment of a debtor and the appointment of a liquidator or administrator (or a similar officeholder), are normally applicable to institutions under the law of any part of the United Kingdom, and are either specific to those institutions or generally applicable to any natural or legal person; and, in particular, includes the bank insolvency procedure and the bank administration procedure; “eligible liabilities” has the meaning given by section 3A(4A), “extraordinary public financial support” means financial assistance that is provided by the Treasury or the Bank of England in order to preserve or restore the viability, liquidity or solvency of a bank, a banking group company or a group which includes a bank, other than— ordinary market assistance offered by the Bank of England on its usual terms, ... a liquidity facility which is provided— to a bank that is facing temporary liquidity problems but is solvent, and by the Bank of England on its own initiative and on its own terms, , or any amount in respect of which the Bank of England may require a recapitalisation payment under section 214E of the Financial Services and Markets Act 2000, and for the purposes of this definition “group” (other than in “banking group company”) has the meaning given in subsection (2)(b); “the PRA” means the Prudential Regulation Authority, “the FCA” means the Financial Conduct Authority, and “financial assistance” has the meaning given by section 257. “own funds” means own funds as defined in Article 4.1(118) of the capital requirements regulation (read with Title I of Part Ten of that regulation), “own funds requirements” means the requirements laid down in Articles 92 and 93 of the capital requirements regulation and Article 94 of Chapter 3 of the Trading Book (CRR) Part of the PRA Rulebook (read with Title I of Part Ten of that regulation), “the recovery and resolution directive” means Directive 2014/59/EU of the European Parliament and of the Council of 15th May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms as last amended by Directive (EU) 2019/879 of the European Parliament and of the Council of 20th May 2019, “relevant capital instruments” means Additional Tier 1 instruments and Tier 2 instruments, “relevant internal liabilities” of a bank or banking group company means eligible liabilities held by a resolution entity in the same resolution group as the bank or banking group company, either directly or indirectly (through other entities in the same resolution group that bought the liabilities from the bank or banking group company), “resolution entity” means an entity which is identified by the Bank of England in a resolution plan or a group resolution plan under Part 5 of the Bank Recovery and Resolution (No.2) Order 2014 as an entity in respect of which— the Bank of England might exercise a stabilisation power, or ... a relevant third-country authority might take third-country resolution action, and for the purposes of this definition, ... “relevant third-country authority” has the meaning given by section 81AA(14) ... and “third-country resolution action” has the meaning given by section 89H(7), “resolution group” means a resolution entity together with any subsidiary that— is not a resolution entity itself, is not a subsidiary of another resolution entity, and where the subsidiary is established in a country or territory other than the United Kingdom, is stated by the group resolution plan under Part 5 of the Bank Recovery and Resolution (No.2) Order 2014 to be included in the resolution group, and for the purpose of this definition “subsidiary” has the meaning given by Article 4.1(16) of the capital requirements regulation, “Tier 2 instruments” means capital instruments or subordinated loans that meet the conditions laid down in Article 63 of the capital requirements regulation (or which qualify as Tier 2 instruments by virtue of Chapter 2 or 4 of Title I of Part Ten of that regulation), (2) For the purposes of the definition of “critical functions” in subsection (1)— (a) Article 6 of Commission Delegated Regulation (EU) 2016/778 (criteria relating to the determination of critical functions) applies, and (b) “group” means a parent undertaking within the meaning given by Article 4.1(15)(a) of the capital requirements regulation and its subsidiaries within the meaning given by Article 4.1(16) of that regulation. (2A) The Treasury may by regulations made by statutory instrument specify criteria for the determination of the activities, services and operations referred to in the definition of “critical functions”. (2B) The power conferred by subsection (2A) includes— (a) power to amend or revoke Article 6 of Commission Delegated Regulation (EU) 2016/778; and (b) power to amend or repeal subsection (2)(a). (2C) A statutory instrument containing regulations under subsection (2A) is subject to annulment in pursuance of a resolution of either House of Parliament. (3) In this Part references to a director include, in relation to an undertaking which has no board of directors, a member of the equivalent management body responsible for the management of the undertaking concerned. (4) In this Part a reference to the PRA rulebook is to the rulebook published by the PRA containing rules made by the PRA under the Financial Services and Markets Act 2000 as the rulebook has effect on 1 January 2022.
Propose a change(1) In this section “relevant person” means— (a) an institution authorised for the purpose of the Financial Services and Markets Act 2000 by the PRA or FCA, (b) a parent of such an institution which— (i) is a financial holding company or a mixed financial holding company; and (ii) is established in, or formed under the law of any part of, the United Kingdom, or (c) a subsidiary of such an institution or of such a parent which— (i) is a financial institution authorised by the PRA or FCA, and (ii) is established in, or formed under the law of any part of, the United Kingdom. (2) The Bank of England may give directions to a relevant person requiring that person to take measures which, in the opinion of the Bank of England, are required to address impediments to— (a) the effective exercise of the stabilisation powers, or (b) the winding up of that person (whether by use of the bank insolvency procedure provided for under Part 2 of this Act or otherwise). (3) The power conferred by subsection (2) includes a power to direct a relevant person— (a) to amend a group financial support agreement; (b) where there is no such agreement, to review the need to enter into one; (c) to enter into an agreement for the provision of services relating to the provision of critical functions; (d) to limit that person’s maximum individual and aggregate exposures (with “exposure” for this purpose having the meaning given in the capital requirements regulation); (e) to produce information which is relevant to the exercise of the stabilisation powers, and to provide that information to the Bank of England; (f) to dispose of specified assets; (g) to cease carrying out specified activities, or observe restrictions in relation to the carrying out of specified activities; (h) to cease the development of new or existing business operations, or observe restrictions in relation to the development of such operations; (i) in order to ensure that it is possible for the performance of critical functions to be legally or operationally separated from the performance of other functions— (i) to change its legal or operational structure, or (ii) so far as it is able to do so, to change the legal or operational structure of a subsidiary; (j) to establish a financial holding company which is not a subsidiary of an institution, another financial holding company or a mixed financial holding company. (4) The Bank of England may give directions to a relevant person requiring that person to maintain or issue particular kinds of bail-in liabilities. (4A) Where the Bank of England gives directions to a relevant person under subsection (4) the bail-in liabilities that the person is required to maintain or issue are referred to, in relation to that person, as “eligible liabilities”. (4B) The Bank of England may give directions to a relevant person requiring that person— (a) to maintain a minimum requirement for own funds and eligible liabilities, and (b) for the purpose of paragraph (a), to change the maturity profile of own funds instruments and eligible liabilities or take other specified steps. (4C) The Bank of England must not exercise the power under subsection (4B)(b) in relation to the maturity profile of own funds instruments— (a) in the case of a relevant person which is— (i) an institution authorised for the purpose of the Financial Services and Markets Act 2000 by the PRA, or (ii) a parent of such an institution or subsidiary of such an institution or such a parent for the purposes of paragraph (b) or (c) of subsection (1), without the consent of the PRA, or (b) in the case of a relevant person to which paragraph (a) does not apply, without the consent of the FCA. (5) Under subsection (4B), the Bank may, in particular, direct a relevant person to endeavour to re-negotiate any eligible liability or relevant capital instruments issued by that person, for the purpose of ensuring that any decision by the Bank to write down or convert the liability or instrument concerned would have effect under the law which governs that liability or instrument. (6) The Bank may give directions to a relevant MAHC requiring it to establish a separate financial holding company as a parent of an institution for the purpose of— (a) facilitating the exercise of the stabilisation powers, or (b) ensuring that the exercise of a stabilisation power does not have an adverse effect on the non-financial part of the group of the relevant MAHC. (7) Directions under this section— (a) must be in writing, and (b) may be given with general effect or with respect to a particular relevant person or class of relevant persons. (8) In this section— “financial holding company” has the meaning given by Article 4.1(20) of the capital requirements regulation; “financial institution” has the meaning given by Article 4.1(26) of the capital requirements regulation; “group” has the meaning given in section 3(2)(b); “group financial support agreement” has the meaning given by section 192JB(4) of the Financial Services and Markets Act 2000; “institution” (except in the phrase “financial institution”) means a bank , building society (within the meaning of section 119 of the Building Societies Act 1986) or investment firm; “mixed financial holding company” has the meaning given by Article 4.1(21) of the capital requirements regulation; “parent” means a parent undertaking within the meaning given by section 1162 of the Companies Act 2006; “relevant MAHC” means a mixed activity holding company (within the meaning given by Article 4.1(22) of the capital requirements regulation) which has at least one subsidiary which— is an institution, and is not a subsidiary of a financial holding company which is also a subsidiary of the mixed activity holding company; and “subsidiary” means a subsidiary undertaking within the meaning given by section 1162 of the Companies Act 2006.
Propose a change(1) A direction given to a relevant person under section 3A must be accompanied by a notice which— (a) states when the direction takes effect (see subsections (2) and (3)), (b) gives the Bank of England’s reasons for giving the direction, and, (c) specifies a reasonable period within which the relevant person may make representations to the Bank about the direction. (2) The direction may, if the Bank of England reasonably considers it necessary, take effect— (a) immediately it is given to the relevant person, or (b) on a later date specified in the direction. (3) In any other case the direction takes effect when— (a) it has been confirmed by a notice under subsection (5), and (b) the period during which the direction may be referred to the Upper Tribunal (under subsection (6)) has expired and, if the matter was so referred, the reference and any appeal against the Tribunal’s determination, has been finally disposed of. (4) Where representations are made by the relevant person within the period specified under subsection (1)(c), the Bank must, within a reasonable period, consider those representations and decide— (a) whether to confirm or revoke the direction, and (b) if the direction is revoked, whether to give a different direction. (5) The Bank must— (a) if no representations are made within that specified period, give the relevant person written notice that the direction is confirmed, and (b) if representations are made, give the relevant person written notice of its decision under subsection (4). (6) If the relevant person is aggrieved by the confirmation of the direction, that person may refer the matter to the Upper Tribunal. (7) A notice under subsection (5)(a) or (b) confirming the direction must— (a) inform the relevant person of the right to refer the matter to the Upper Tribunal, and (b) indicate the procedure on such a reference. (8) A notice given under subsection (5)(b) of a decision by the Bank to give a different direction must comply with subsection (1). (9) The Bank must prepare one or more statements of its policy with respect to the giving of directions under section 3A. (10) No power conferred by section 3A may be exercised before the statement of policy in relation to the exercise of that power has been published.
Propose a change(1) This section sets out the special resolution objectives. (2) The relevant authorities shall have regard to the special resolution objectives in using, or considering the use of— (a) the stabilisation powers, (b) the bank insolvency procedure, or (c) the bank administration procedure. (3) For the purpose of this section the relevant authorities are— (a) the Treasury, (b) the PRA, (ba) the FCA, and (c) the Bank of England. (3A) Objective 1 is to ensure the continuity of banking services in the United Kingdom and of critical functions. (4) Objective 2 is to protect and enhance the stability of the financial system of the United Kingdom, including in particular by— (a) preventing contagion (including contagion to market infrastructures such as investment exchanges, clearing houses , recognised CSDs within the meaning of section 285 of the Financial Services and Markets Act 2000 and central counterparties authorised or recognised in the United Kingdom in accordance with Article 14 or 25 of Regulation (EU) 648/2012 of the European Parliament and the Council of 4th July 2012 on OTC derivatives, central counterparties and trade repositories) as it forms part of assimilated law, and (b) maintaining market discipline. (5) Objective 3 is to protect and enhance public confidence in the stability of the financial system of the United Kingdom. (6) Objective 4 is to protect public funds, including by minimising reliance on extraordinary public financial support. (7) Objective 5 is to protect investors and depositors to the extent that they have investments or deposits covered by the FSCS. (8) Objective 6, which applies in any case in which client assets may be affected, is to protect those assets. (9) Objective 7 is to avoid interfering with property rights in contravention of a Convention right (within the meaning of the Human Rights Act 1998). (10) The order in which the objectives are listed in this section is not significant; they are to be balanced as appropriate in each case.
Propose a change(1) The Treasury shall issue a code of practice about— (a) the discharge of the duty imposed by section 6B (mandatory write-down, conversion etc of capital instruments), and (b) the use of— (i) the stabilisation powers, (ii) the bank insolvency procedure, and (iii) the bank administration procedure. (2) The code may, in particular, provide guidance on— (a) how the special resolution objectives are to be understood and achieved, (b) the choice between different options, (c) the information to be provided in the course of a consultation under this Part, (d) the giving of advice by one relevant authority to another about whether, when and how the stabilisation powers are to be used, (e) how to determine whether Condition 2 in section 7 is met, (f) how to determine whether tests for the use of the stabilisation powers in sections 8 and 8ZA are satisfied, (g) sections 63 and 66, and (h) compensation. (2A) The code must include guidance on the contents of a report, and of any interim report, under section 214F of the Financial Services and Markets Act 2000 (recapitalisation payment: report). (3) Sections 12, 12ZA and 13 require the inclusion in the code of certain matters about bridge banks, asset management vehicles and temporary public ownership. (4) The relevant authorities shall have regard to the code. (5) For the purpose of this section the relevant authorities are— (a) the Treasury, (b) the PRA, (ba) the FCA, and (c) the Bank of England.
Propose a change(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) The Treasury may revise and re-issue the code of practice. (4) Before re-issuing the code of practice the Treasury must consult— (a) the PRA, (b) the FCA, (c) the Bank of England, and (d) the scheme manager of the Financial Services Compensation Scheme (established under Part 15 of the Financial Services and Markets Act 2000). (5) As soon as is reasonably practicable after re-issuing the code of practice the Treasury shall lay a copy before Parliament.
Propose a change(1) Section 6B applies in relation to a bank in the cases set out in subsections (2) to (6). (2) Case 1 is where— (a) the conditions imposed by sections 7 to 9 on the exercise of a stabilisation power in respect of the bank are met, (b) the Bank of England or the Treasury (as the case may be) has decided to exercise the power, and (c) section 12AA (mandatory write-down etc in bail-in cases) does not apply. (3) Case 2 is where— (a) the PRA is satisfied that Condition 1 in section 7 is met in respect of the bank, and (b) the Bank of England is satisfied that— (i) (ignoring section 6B) Condition 2 in section 7 is met, and (ii) that Condition will continue to be met unless the action required by section 6B is taken in respect of the bank. (4) Case 3 is where— (a) the bank is viable, (b) it is a subsidiary, (c) relevant capital instruments issued by it are recognised for the purpose of meeting own funds requirements on an individual basis and on a consolidated basis, and (d) the Bank of England makes a determination that the group of which the bank is a member will not be viable unless the action required by section 6B is taken in relation to those instruments. (5) Case 4 is where— (a) the bank is a parent undertaking, (b) relevant capital instruments issued by the bank are recognised for the purposes of meeting own funds requirements on an individual basis at the level of the parent undertaking or on a consolidated basis, and (c) the Bank of England makes a determination that the group will not be viable unless the action required by section 6B is taken in relation to those instruments. (6) Case 5 is where— (a) extraordinary public financial support is required by the bank other than in circumstances where subsection (5E) of section 7 applies by virtue of paragraph (c) of that subsection, and (b) the Bank of England is satisfied ... that, in order for the bank to fulfil its own funds requirements, relevant capital instruments of the bank need to be written down or converted into Common Equity Tier 1 instruments (or both). (7) For the purposes of Case 3, the bank is viable unless— (a) the PRA is satisfied that the bank is failing or likely to fail (within the meaning of section 7(5C)), and (b) having regard to timing and other relevant circumstances, the Bank of England is satisfied that it is not reasonably likely that (ignoring section 6B and the stabilisation powers) action will be taken by or in respect of the bank that will result in the bank no longer being a bank which is failing or likely to fail. (8) For the purposes of Cases 3 and 4 a group is not viable if (and only if)— (a) the consolidating supervisor is satisfied that a requirement under the capital requirements regulationor CRR rules that applies, on a consolidated basis, to a bank which is a member of the group is infringed (or will in the near future be infringed) in a way that justifies action by the consolidating supervisor, and (b) having regard to timing and other relevant circumstances (but ignoring section 6B and the stabilisation powers), it is not reasonably likely that action will be taken by or in respect of the bank that will prevent the requirement being infringed. (9) In this section— ... “on a consolidated basis” means on the basis of the consolidated situation, “consolidated situation” means the situation that results from an entity being treated, for the purposes of the capital requirements regulation or CRR rules (as appropriate), as if that entity and one or more other entities formed a single entity, “consolidating supervisor” means supervisor responsible for the exercise of supervision of an entity on a consolidated basis, “group” has the meaning given in section 3(2)(b), “parent undertaking” has the meaning given by Article 4.1(15)(a) of the capital requirements regulation, and “subsidiary” has the meaning given by Article 4.1(16) of the capital requirements regulation.
Propose a change(1) In a case where this section applies, the Bank of England must without delay make— (a) an instrument in relation to the bank containing the mandatory reduction provision, or (b) two or more instruments which (taken together) contain that provision. An instrument made under this subsection is a “mandatory reduction instrument”. (2) “The mandatory reduction provision” is provision which produces the following results— (a) existing Common Equity Tier 1 instruments of the bank are cancelled, transferred or diluted in accordance with the principle that losses should be borne first by the holders of such instruments, (b) the principal amount of Additional Tier 1 instruments of the bank is reduced or such instruments are converted (directly or indirectly) into Common Equity Tier 1 instruments (or both)— (i) to the extent required to achieve the special resolution objectives set out in section 4, or (ii) to the extent of the capacity of the relevant capital instruments, whichever is lower; ... (c) the principal amount of Tier 2 instruments of the bank is reduced or Tier 2 instruments are converted (directly or indirectly) into Common Equity Tier 1 instruments (or both)— (i) to the extent required to achieve the special resolution objectives set out in section 4 (so far as not achieved under paragraph (b)), or (ii) to the extent of the capacity of the relevant capital instruments, whichever is lower; and (d) where this section applies by virtue of section 6A(3) (Case 2) and the bank is not a resolution entity, but is in a resolution group, the principal amount of the relevant internal liabilities is reduced or such liabilities are converted (directly or indirectly) into Common Equity Tier 1 instruments (or both)— (i) to the extent required to achieve the special resolution objectives set out in section 4 (so far as not achieved under paragraphs (b) and (c)), or (ii) to the extent of the capacity of such liabilities, whichever is lower. (3) For the purposes of subsection (2), a mandatory reduction instrument may contain— (a) provision cancelling existing Common Equity Tier 1 instruments of the bank, (b) provision transferring (directly or indirectly), to holders of Additional Tier 1 instruments , Tier 2 instruments or relevant internal liabilities of the bank, Common Equity Tier 1 instruments of the bank, (c) provision converting relevant capital instruments or relevant internal liabilities of the bank (directly or indirectly) into Common Equity Tier 1 instruments of the bank or a parent undertaking of the bank, (d) provision cancelling a liability owed by the bank, (e) provision modifying, or changing the form of, a liability owed by the bank, (f) provision that a contract under which the bank has a liability is to have effect as if a specified right had been exercised under it. (4) The following rules apply to the interpretation of subsection (3)— A. The reference to cancelling a liability owed by the bank includes a reference to cancelling a contract under which the bank has a liability. B. The reference to modifying a liability owed by the bank includes a reference to modifying the terms (or the effect of the terms) of a contract under which the bank has a liability. C. The reference to changing the form of a liability owed by the bank includes, for example— converting an instrument under which the bank owed a liability from one form or class to another, replacing such an instrument with another instrument of a different form or class, or creating a new security (of any form or class) in connection with the modification of such an instrument. (5) Provision made by virtue of subsection (3) may include— (a) provision for securities issued by a specified bank to be transferred to a resolution administrator (see section 62B) or another person; (b) where a previous mandatory reduction instrument (“the original instrument) has contained provision under paragraph (a), provision for the transfer of— (i) securities which were transferred by the original instrument, or (ii) securities which were issued by the bank after the original instrument was made. (6) Provision made in accordance with subsection (5) may relate to— (a) specified securities, or (b) securities of a specified description. (7) Where the Bank of England has exercised the power in subsection (5)(a) to transfer securities to a resolution administrator, the Bank must exercise its functions under this Part with a view to ensuring that any securities held by that person in the capacity of resolution administrator are so held only for so long as is, in the Bank of England’s opinion, appropriate having regard to the special resolution objectives. (8) Where Case 1 in section 6A applies, the Bank must comply with subsection (1) before or at the same time as exercising the stabilisation power. (9) Where Case 3 in section 6A applies, the principal amount of a relevant capital instrument issued by the bank must not be reduced under this section to a greater extent, or converted on worse terms, than equally ranked capital instruments at the level of any parent undertaking of the bank which are reduced, or converted (a) pursuant to this section as it applies in relation to a banking group company by virtue of section 81AA, or (b) in the course of applying the bail-in option provided for by section 12A or section 81BA. (10) In this section “parent undertaking” has the meaning given by Article 4.1(15)(a) of the capital requirements regulation.
Propose a change(1) Where the principal amount of a relevant capital instrument or a relevant internal liability is reduced under section 6B— (a) the reduction must be permanent, subject to any provision made by virtue of section 48Y(1)(a); (b) no liability to the holder of the relevant capital instrument or the relevant internal liability remains under, or in connection with, so much of the amount of the instrument or relevant internal liability as constitutes the reduction, except for— (i) any liability already accrued in a case where the principal amount of the instrument or the relevant internal liability is not reduced or converted (or both) to the full extent of its capacity, and (ii) any liability for damages that may arise as a result of any challenge to the legality of the exercise of the power of reduction; (c) no compensation is to be paid to any holder of the relevant capital instrument or the relevant internal liability other than in accordance with subsection (4). (2) Nothing in subsection (1)(b) prevents the provision of Common Equity Tier 1 instruments to a holder of relevant capital instruments or relevant internal liabilities in accordance with subsection (4). (3) In order to effect a conversion of relevant capital instruments or relevant internal liabilities under section 6B, the Bank of England may require the bank, or a UK parent undertaking, to issue Common Equity Tier 1 instruments to the holders of the relevant capital instruments or relevant internal liabilities. (4) The relevant capital instruments or relevant internal liabilities may only be so converted if— (a) the Common Equity Tier 1 instruments are issued by the bank, or by a UK parent undertaking of the bank with the agreement of the Bank of England, (b) the Common Equity Tier 1 instruments are issued prior to the issue of any shares by the bank, or by a parent undertaking of the bank, for the purposes of provision of own funds by the Treasury, (c) the Common Equity Tier 1 instruments are awarded and transferred without delay following the exercise of the conversion power, and (d) the conversion rate that determines the number of Common Equity Tier 1 instruments that are provided in respect of each relevant capital instrument or relevant internal liability represents appropriate compensation to the affected creditor for any loss incurred in consequence of the conversion of that instrument or liability. (4A) Where different conversion rates are applied to different classes of instrument or liability, a lower conversion rate must be applied to subordinated debt than is applied to debts ranking higher in the hierarchy of claims in normal insolvency proceedings. (5) For the purposes of the provision of Common Equity Tier 1 instruments in accordance with subsections (2), (3) and (4), the Bank of England may require the bank or a UK parent undertaking of the bank to maintain at all times the necessary prior authorisation to issue the relevant number of Common Equity Tier 1 instruments. (6) Before making a mandatory reduction instrument, the Bank must consult— (a) the PRA, (b) the FCA, and (c) the Treasury. (7) In this section— “parent undertaking” has the meaning given by Article 4.1(15)(a) of the capital requirements regulation, ... “UK parent undertaking” means a parent undertaking that is incorporated in, or formed under the law of, any part of the United Kingdom.
Propose a change(1) The following provisions apply in relation to a mandatory reduction instrument as they apply to a resolution instrument— (a) section 48L(3) and (5) (powers relating to securities issued by the bank), (b) section 48O (power to direct directors of the bank), (c) section 48Q (continuity), (d) section 48R (execution and registration of instruments etc), (e) section 48S (general matters), and (f) section 48T (procedure). (2) Where the Bank of England makes one or more mandatory reduction instruments in respect of a bank, the Bank must, on request by the Treasury, report to the Chancellor of the Exchequer about— (a) the exercise of the power to make a mandatory reduction instrument, (b) the activities of the bank, and (c) any other matters in relation to the bank that the Treasury may specify. (3) In relation to the matters in subsection (2)(a) and (b), the report must comply with any requirements that the Treasury may specify. (4) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.
Propose a change(1) Before the Bank of England makes a mandatory reduction instrument or exercises any stabilisation power in respect of a bank, it must ensure that the assets and liabilities of the bank are valued. (2) Unless subsection (3) applies, the Bank of England must arrange for the appointment of an independent valuer in accordance with section 62A to carry out a valuation for the purposes of subsection (1). (3) Where the Bank of England considers that the urgency of the case makes it appropriate to make a mandatory reduction instrument, or exercise a stabilisation power, before a valuation can be carried out by a person appointed in accordance with subsection (2), the Bank may carry out a provisional valuation of the assets and liabilities of the bank for the purposes of subsection (1). (4) The purpose of a valuation carried out pursuant to subsection (1) is to— (a) inform the decision as to— (i) whether the conditions for the making of a mandatory reduction instrument or the exercise of a stabilisation power is satisfied, (ii) which stabilisation option should be employed, (iii) the extent to which any shares, capital instruments or eligible liabilities should be cancelled, diluted, transferred, written down or converted through the use of a mandatory reduction instrument or a resolution instrument, (iv) what assets, liabilities or securities (if any) are to be transferred by a property transfer instrument or a share transfer instrument, and (v) the value of any consideration to be paid to the bank or the owners of the securities for any assets, liabilities or securities so transferred, and (b) ensure that the full extent of any losses on the assets of that bank is appreciated at the time the Bank of England makes a mandatory reduction instrument or exercises a stabilisation power. (5) In carrying out a valuation required under subsection (1), the person carrying out the valuation must— (a) make prudent assumptions as to possible rates of default and the severity of losses suffered by the bank, (b) disregard potential financial assistance which may be provided by the Bank of England or the Treasury after the Bank has made any mandatory reduction instrument or exercised any stabilisation power (except for ordinary market assistance offered by the Bank on its usual terms), (c) take account of the fact that— (i) the Bank of England and the Treasury may recover expenses incurred in connection with the exercise of a stabilisation power under section 58(2)(b), (ii) the Bank of England and the Treasury may charge interest or fees in respect of any loans or guarantees provided to the bank after the Bank has made any mandatory reduction instrument or exercised any stabilisation power in respect of it. (6) The valuation carried out under this section must follow the methodology specified in— (a) any Commission Regulation containing regulatory technical standards adopted by the European Commission under article 36.16 of the recovery and resolution directive, so far as they are assimilated law, or (b) technical standards made under subsection (11)(a). (7) A valuation under subsection (1) must be accompanied by— (a) a balance sheet of the bank as at the date of the valuation, (b) a report on the financial position of the bank, (c) an analysis and an estimate of the accounting value of the assets of the bank, (d) a list of the outstanding liabilities of the bank (including any off-balance sheet liabilities), with the creditors subdivided into classes according to the priority their claims would receive in insolvency proceedings, and (e) an estimate of the amount that each class of creditors and shareholders might be expected to receive if the bank went into insolvent liquidation. (8) Where appropriate, the information in subsection (7)(c) may be supplemented by an analysis and estimate of the value of the assets and liabilities of the bank on a market value basis in order to inform the decision referred to in paragraph (a)(iv) or (v) of subsection (4). (9) Where a provisional valuation is carried out under subsection (3), the Bank need only comply with subsection (7) as far as it is reasonable to do so in the circumstances. (10) A provisional valuation carried out under subsection (1) must make provision in respect of additional losses by the bank in accordance with— (a) any Commission Regulation containing regulatory technical standards adopted by the European Commission under article 36.16 of the recovery and resolution directive, so far are as they are assimilated law, or (b) technical standards made under subsection (11)(b). (11) The Bank of England may make technical standards relating to— (a) the methodology for assessing the value of the assets and liabilities of a bank for the purposes of a valuation under this section; (b) the methodology for calculating and including a buffer for additional losses in the provisional valuation.
Propose a change(1) A stabilisation power may be exercised in respect of a bank only if— (a) the PRA is satisfied that Condition 1 is met, and (b) the Bank of England is satisfied that Conditions 2, 3 and 4 are met. (2) Condition 1 is that the bank is failing or likely to fail. (3) Condition 2 is that, having regard to timing and other relevant circumstances, it is not reasonably likely that (ignoring the stabilisation powers) action will be taken by or in respect of the bank that will result in Condition 1 ceasing to be met. (4) Condition 3 is that the exercise of the power is necessary having regard to the public interest in the advancement of one or more of the special resolution objectives. (5) Condition 4 is that one or more of the special resolution objectives would not be met to the same extent by the winding up of the bank (whether under Part 2 or otherwise). (5A) The PRA must treat Condition 1 as met if satisfied that it would be met but for financial assistance provided by— (a) the Treasury, or (b) the Bank of England, disregarding ordinary market assistance offered by the Bank on its usual terms. (5B) The Bank of England must treat Condition 2 as met if satisfied that it would be met but for financial assistance of the kind mentioned in subsection (5A). (5C) For the purposes of Condition 1, a bank is failing or likely to fail if— (a) it is failing, or is likely to fail, to satisfy the threshold conditions in circumstances where that failure would justify the variation or cancellation by the PRA under section 55J of the Financial Services and Markets Act 2000 of the bank’s permission under Part 4A of that Act to carry on one or more regulated activities, (b) the value of the assets of the bank determined is less than the amount of its liabilities, (c) the bank is unable to pay its debts or other liabilities as they fall due, (d) paragraph (b) or (c) (or both) will, in the near future, apply to the bank, or (e) extraordinary public financial support is required in respect of the bank and subsection (5E) does not apply to that support. (5D) “The threshold conditions” means the threshold conditions, as defined by subsection (1) of section 55B of the Financial Services and Markets Act 2000, for which the PRA is treated as responsible under subsection (2) of that section. (5E) This subsection applies where, in order to remedy a serious disturbance in the economy of the United Kingdom and preserve financial stability, the extraordinary public financial support takes any of the following forms— (a) a State guarantee to back liquidity facilities provided by the Bank of England, (b) a State guarantee of newly issued liabilities, (c) an injection of own funds, or purchase of capital instruments, at prices and on terms that do not confer an advantage upon the bank, where none of the circumstances referred to in subsection (5C)(a), (b), (c) or (d) are present at the time the public support is granted and none of Cases 1 to 4 in section 6A apply. (5F) Before determining that Condition 1 is met, the PRA must consult the Bank of England. (5G) Before determining whether or not Condition 2 is met, the Bank of England must consult— (a) the PRA, (b) the FCA, and (c) the Treasury. (5H) Before determining that Conditions 3 and 4 are met, the Bank must consult— (a) the PRA, (b) the FCA, and (c) the Treasury. (6) The special resolution objectives are not relevant to Conditions 1 and 2. (7) The conditions for applying for and making a bank insolvency order are set out in sections 96 and 97. (8) The conditions for applying for and making a bank administration order are set out in sections 143 and 144.
Propose a change(1) Where the Bank of England is considering the imposition of a requirement under section 3A(2), (4), (4B)(b), (5) or (6), the Bank must consult the PRA and the FCA, and have regard to the potential impact of the requirement on— (a) the institution in question, (b) the market for financial services within the United Kingdom, and (c) the financial stability of the United Kingdom. (1A) Subsection (1) does not apply in relation to a requirement under section 3A(4) for a person to maintain (but not issue) a particular kind of bail-in liability. (2) Where the Bank of England is considering the exercise of a stabilisation power in respect of a bank which is a member of a group, the Bank must have regard to— (a) the need to minimise the effect of the exercise of the power on other undertakings in the same group, (b) the need to minimise any adverse effects on the financial stability of the United Kingdom, and (c) the potential effect of the exercise of the power on the financial stability of countries other than the United Kingdom (particularly those ... countries in which any member of that group is operating). (3) In this section “group” has the meaning given by section 474 of the Companies Act 2006.
Propose a change(1) In a financial assistance case, the Bank may exercise a stabilisation power in respect of the bank concerned in accordance with section 11(2), 12(2) or 12ZA(3) only with the approval of the Treasury. (2) “Financial assistance case” means a case where the Treasury notify the Bank of England that they have provided financial assistance in respect of a bank for the purpose of resolving or reducing a serious threat to the stability of the financial systems of the United Kingdom. (3) The condition in this section is in addition to the conditions in sections 7 and 8ZA.
Propose a change(1) The Bank of England may exercise a stabilisation power in respect of a bank in accordance with section 12ZA(3) only if satisfied that Conditions A and B are met. (2) Condition A is that the power is exercised in connection with the exercise of one or more stabilisation powers in respect of the bank, or a company which is a banking group company in relation to the bank, otherwise than for the purposes of the third stabilisation option. (3) Condition B is that the Bank of England is satisfied that— (a) the situation of the market for the assets which it is proposed to transfer by the exercise of the stabilisation power is of such a nature that the liquidation of those assets under normal insolvency proceedings could have an adverse effect on one or more financial markets, (b) the transfer is necessary to ensure the proper functioning of the bank or bridge bank from which the transfer is to be made, or (c) the transfer is necessary to maximise the proceeds available for distribution. (4) Before determining whether Conditions A and B are met, and if so how to react, the Bank of England must consult— (a) the PRA, (b) the FCA, and (c) the Treasury. (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) The conditions in this section are in addition to the conditions in sections 7 and 8.
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Propose a change(1) The Treasury may exercise a stabilisation power in respect of a bank in accordance with section 13(2) only if satisfied that one of the following conditions is met. (2) Condition A is that the exercise of the power is necessary to resolve or reduce a serious threat to the stability of the financial systems of the United Kingdom. (3) Condition B is that exercise of the power is necessary to protect the public interest, where the Treasury have provided financial assistance in respect of the bank for the purpose of resolving or reducing a serious threat to the stability of the financial systems of the United Kingdom or the Bank of England has provided extraordinary public financial support in respect of the bank. (4) Before determining whether a condition is met the Treasury must consult— (a) the PRA, (aa) the FCA, and (b) the Bank of England. (5) The conditions in this section are in addition to the conditions in section 7.
Propose a change(1) The Treasury shall make arrangements for a panel to advise the Treasury about the effect of the special resolution regime on— (a) banks, (b) persons with whom banks do business, and (c) the financial markets. (2) In particular, the panel may advise the Treasury about— (a) the exercise of powers to make statutory instruments under or by virtue of this Part, Part 2 or Part 3 (excluding the stabilisation powers, compensation scheme orders, resolution fund orders, third party compensation orders and orders under section 75(2)(b) and (c)), (b) the code of practice under section 5, and (c) anything else referred to the panel by the Treasury. (3) The Treasury shall ensure that the panel includes— (a) a member appointed by the Treasury, (b) a member appointed by the Bank of England, (c) a member appointed by the PRA, (ca) a member appointed by the FCA, (d) a member appointed by the scheme manager of the Financial Services Compensation Scheme, (e) one or more persons who in the Treasury's opinion represent the interests of banks, (f) one or more persons who in the Treasury's opinion have expertise in law relating to the financial systems of the United Kingdom, and (g) one or more persons who in the Treasury's opinion have expertise in insolvency law and practice.
Propose a change(1) The first stabilisation option is to sell all or part of the business of the bank to a commercial purchaser. (2) For that purpose the Bank of England may make— (a) one or more share transfer instruments; (b) one or more property transfer instruments.
Propose a change(1) Subject to subsection (4), the Bank of England must make arrangements for marketing— (a) any securities issued by the bank which the Bank intends to transfer by a share transfer instrument under section 11(2)(a), or (b) any property, rights or liabilities of the bank which the Bank intends to transfer by a property transfer instrument under section 11(2)(b). (2) The arrangements under subsection (1) must— (a) be as transparent as possible having regard to the circumstances and the need to maintain financial stability; (b) ensure there is no conflict of interest; (c) take account of the need for the Bank to act quickly to address the situation where a bank is failing or likely to fail; (d) aim at maximising, as far as possible, the sale price for the securities or property, rights or liabilities involved. (3) The arrangements under subsection (1) must not— (a) materially misrepresent the securities or property, rights or liabilities which the Bank intends to transfer; (b) favour or discriminate between potential purchasers or grant an unfair advantage to a potential purchaser. (4) Subsection (1) does not apply if the Bank of England considers that complying with that subsection would undermine one or more of the special resolution objectives. (5) In particular subsection (1) does not apply if the Bank considers that— (a) there is a material threat to financial stability in the United Kingdom ... arising from or aggravated by the failure or likely failure of the bank, and (b) complying with subsection (1) would undermine the effectiveness of the first stabilisation option in addressing that threat or achieving the objective in section 4(4). (7) Any public disclosure of the marketing which may be required under Article 17(1) of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse may be delayed in accordance with Article 17(4) or (5) of that Regulation. (8) The reference in subsection (7) to Regulation (EU) No 596/2014 is to that Regulation as it forms part of assimilated law.
Propose a change(1) The second stabilisation option is to transfer all or part of the business of the bank to a company which meets the requirements of subsection (1A) (a “bridge bank”). (1A) Those requirements are that the company— (a) is wholly or partially owned by the Bank of England, (b) is controlled by the Bank, and (c) is created for the purposes of receiving a transfer by virtue of this section with a view to maintaining access to critical functions and (in due course) selling the bank or its business. (2) For the purpose of subsection (1) the Bank of England may make— (a) one or more share transfer instruments; (b) one or more property transfer instruments. (3) The code of practice under section 5 must include provision about the management and control of bridge banks including, in particular, provision about— (a) setting objectives, (b) the content of the articles of association, (c) the content of reports under section 80(1), (d) different arrangements for management and control at different stages, and (e) eventual disposal. (3A) Where— (a) all or substantially all of the bridge bank’s assets, rights and liabilities have been transferred to a third party, or (b) following a transfer to the bridge bank under this section, no further transfer to the bridge bank is made under this section during the relevant post-transfer period, the Bank of England must, without delay, take all necessary steps to wind up the bridge bank. (3B) But subsection (3A)(b) does not apply if the bridge bank— (a) has merged with another entity, (b) has ceased to meet the requirements of subsection (1A)(a) or (b), or (c) has already been wound up. (3C) “The relevant post-transfer period” means the period of two years beginning with the day of the transfer mentioned in subsection (3A)(a), subject to any extension under subsection (3D). (3D) The Bank of England may extend (or further extend) the relevant post-transfer period by one year if it is satisfied that the extension— (a) would support one or more of the outcomes mentioned in subsection (3A)(a) or (3B)(a), (b) or (c), or (b) is necessary to ensure the continuity of essential banking or financial services. (4) Where property, rights or liabilities are first transferred by property transfer instrument to a bridge bank and later transferred (whether or not by the exercise of a power under this Part) to another company which meets the requirements of subsection (1A), that other company is an “onward bridge bank”. (5) An onward bridge bank— (a) is a bridge bank for the purposes of— (i) subsections (3) to (3B), (ia) section 8ZA(3)(b), (ib) section 12ZA(1)(b) and (2)(c), (ii) section 77, (iii) section 79, and (iv) section 80(5), but (b) is not a bridge bank for the purposes of— (i) section 30(1), (ii) section 43(1), or (iii) section 80(1).
Propose a change(1) The third stabilisation option is to transfer all or part of the business of— (a) the bank, or (b) a bridge bank to which shares or property, rights or liabilities of the bank have been transferred under section 12, to an asset management vehicle. (2) An “asset management vehicle” is an undertaking which— (a) is wholly or partially owned (directly or indirectly) by the Bank of England or the Treasury, (b) is controlled by the Bank of England, and (c) is created for the purpose of receiving some or all of the assets, rights and liabilities of one or more banks or of one or more bridge banks (or both). (3) For the purpose of subsection (1) the Bank of England may make one or more property transfer instruments. (4) An asset management vehicle must manage the assets transferred to it with a view to maximising their value through eventual sale or orderly wind down. (5) The code of practice under section 5 must include provision about the management and control of asset management vehicles including, in particular, provision about— (a) setting objectives, (b) the content of the articles of association, (c) the content of reports under section 80(1), (d) different arrangements for management and control at different stages, and (e) eventual disposal. (6) Where property, rights or liabilities are transferred to an asset management vehicle pursuant to the third stabilisation option, the Bank of England may make one or more supplemental property transfer instruments transferring any of that property, or those rights or liabilities, to one or more other asset management vehicles.
Propose a change(1) The fourth stabilisation option is exercised by the use of the power in subsection (2). (2) The Bank of England may make one or more resolution instruments. (2A) A resolution instrument may contain provision or proposals of any kind mentioned in subsections (3) to (6). (2B) The power in subsection (2) must be exercised in accordance with section 12AA. (2C) When the Bank of England exercise that power, at least one resolution instrument must include provision under section 48H(1) (business reorganisation plan). (3) A resolution instrument may— (a) make special bail-in provision with respect to a specified bank; (b) make other provision for the purposes of, or in connection with, any special bail-in provision made by that or another instrument. (4) A resolution instrument may— (a) provide for securities issued by a specified bank to be transferred to a resolution administrator (see section 62B) or another person; (b) make other provision for the purposes of, or in connection with, the transfer of securities issued by a specified bank (whether or not the transfer has been or is to be effected by that instrument, by another resolution instrument or otherwise). (5) A resolution instrument may set out proposals with regard to the future ownership of a specified bank or of the business of a specified bank, and any other proposals (for example, proposals about making special bail-in provision) that the Bank of England may think appropriate. (6) A resolution instrument may make any other provision the Bank of England may think it appropriate to make in exercise of specific powers under this Part. (7) Provision made in accordance with subsection (4) may relate to— (a) specified securities, or (b) securities of a specified description. (8) Where the Bank of England has exercised the power in subsection (4) to transfer securities to a resolution administrator, the Bank of England must exercise its functions under this Part (see, in particular, section 48V) with a view to ensuring that any securities held by a person in the capacity of a resolution administrator are so held only for so long as is, in the Bank of England's opinion, appropriate having regard to the special resolution objectives. (9) References in this Part to “special bail-in provision” are to provision made in reliance on section 48B.
Propose a change(1) When the Bank of England exercises the fourth stabilisation option, it must use the powers conferred by sections 12A, 48B to 48W and 48Z and this section in a way which ensures that— (a) existing Common Equity Tier 1 instruments of the bank are cancelled, transferred or diluted in accordance with the principle that losses should be borne first by the holders of such instruments, (b) the principal amount of Additional Tier 1 instruments is reduced or converted (directly or indirectly) into Common Equity Tier 1 instruments (or both), to the extent of the capacity of the Additional Tier 1 instruments, (c) the principal amount of Tier 2 instruments is reduced or converted (directly or indirectly) into Common Equity Tier 1 instruments (or both), to the extent of the capacity of the Tier 2 instruments, (d) where the total of any reduction or conversion pursuant to paragraphs (b) and (c) is less than the shortfall amount, the principal amount of subordinated debt that is not within either of those paragraphs is— (i) reduced or converted (directly or indirectly) into shares or other securities, or both reduced and so converted, in accordance with the hierarchy of claims in normal insolvency proceedings, by the difference or to the extent of the capacity of those instruments, whichever is lower, and (ii) losses are born by the holders of shares of the bank that are not within paragraph (a), (b) or (c) in accordance with the hierarchy of claims in normal insolvency proceedings, (e) where the total of any reduction or conversion pursuant to paragraphs (b), (c) and (d), and any reduction or conversion pursuant to subsection (6), is less than the shortfall amount, the principal amount of, or outstanding amount payable in respect of, the remaining bail-in liabilities is reduced or converted (directly or indirectly) into shares or other securities, or both reduced and so converted, in accordance with the hierarchy of claims in normal insolvency proceedings, by the difference or to the extent of their capacity, whichever is lower. (2) In this section— ... “the shortfall amount” means the sum of the amounts referred to in Article 47.3(b) and (c) of the resolution and recovery directive less the amount of any recapitalisation payment required under section 214E of the Financial Services and Markets Act 2000 in relation to the bank in question. (3) Subsections (1) to (4) of section 6C apply for the purpose of this section as if references in those subsections to section 6B were references to subsection (1)(a) to (c) of this section. (4) When complying with subsection (1)(d) and (e), the Bank of England must allocate the losses represented by the shortfall amount equally between bail-in liabilities of the same rank by reducing the principal amount of, or outstanding amount payable in respect of, those bail-in liabilities to the same extent in proportion to their value, except where a different allocation of losses amongst liabilities of the same rank is allowed by virtue of section 48B(10) and (11). (5) Subsection (4) does not prevent excluded liabilities (as defined by section 48B(7A)) from receiving more favourable treatment than bail-in liabilities which are of the same rank in normal insolvency proceedings. (6) The Bank may take the action required by subsection (1)(e) only if it converts or reduces the principal amount of any instruments referred to in subsection (1)(d) which contain— (a) terms that provide for the principal amount of the instrument to be reduced on the occurrence of any event that refers to the financial situation, solvency or levels of own funds of the bank, or (b) terms that provide for the conversion of the instruments to shares on the occurrence of any such event, in accordance with those terms. (7) Where the principal amount of an instrument has been reduced, but not to zero, in accordance with terms of the kind referred to in subsection (6)(a) before the application of the bail-in option, the Bank must take the action required by subsection (1) in relation to the residual amount of that principal. (8) When taking the action required by subsection (1), the Bank must not convert or reduce one class of liabilities while a class of liabilities that is subordinated to that class remains substantially unconverted or the principal amount of those liabilities is not reduced to nil. (9) For the purpose of subsection (8), excluded liabilities within the meaning of section 48B(7A) are to be ignored. (10) For the purposes of this section “existing” Common Equity Tier 1 instruments includes Common Equity Tier 1 instruments issued or conferred in the following circumstances— (a) pursuant to conversion of debt instruments to Common Equity Tier 1 instruments in accordance with contractual terms of the original debt instruments on the occurrence of an event that preceded, or occurred at the same time as, the assessment by the Bank of England that the bank met the conditions in section 7; (b) pursuant to any previous conversion of relevant capital instruments to Common Equity Tier 1 instruments in accordance with section 6B.
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Propose a change(1) The fifth stabilisation option is to take the bank into temporary public ownership. (2) For that purpose the Treasury may make one or more share transfer orders in which the transferee is— (a) a nominee of the Treasury, or (b) a company wholly owned by the Treasury. (3) The code of practice under section 5 must include provision about the management of banks taken into temporary public ownership under this section.
Propose a change(1) In this Part “securities” includes anything falling within any of the following classes. (2) Class 1: shares and stock. (3) Class 2: debentures, including— (a) debenture stock, (b) loan stock, (c) bonds, (d) certificates of deposit, and (e) any other instrument creating or acknowledging a debt. (4) Class 3: warrants or other instruments that entitle the holder to acquire anything in Class 1 or 2. (5) Class 4: rights which— (a) are granted by a deposit-taker, and (b) form part of the deposit-taker's own funds for the purposes of Title 1 of Part 2 of the capital requirements regulation.
Propose a change(1) A share transfer instrument is an instrument which— (a) provides for securities issued by a specified bank to be transferred; (b) makes other provision for the purposes of, or in connection with, the transfer of securities issued by a specified bank (whether or not the transfer has been or is to be effected by that instrument, by another share transfer instrument or otherwise). (1A) Where the Bank of England requires a recapitalisation payment to be made under section 214E of the Financial Services and Markets Act 2000 in respect of a specified bank, a share transfer instrument may include provision requiring the specified bank to issue securities. (2) A share transfer instrument may relate to— (a) specified securities, or (b) securities of a specified description.
Propose a change(1) A share transfer order is an order which— (a) provides for securities issued by a specified bank to be transferred; (b) makes other provision for the purposes of, or in connection with, the transfer of securities issued by a specified bank (whether or not the transfer has been or is to be effected by that order, by another share transfer order or otherwise). (2) A share transfer order may relate to— (a) specified securities, or (b) securities of a specified description.
Propose a change(1) In this section “transfer” means a transfer provided for by a share transfer instrument or order, by a mandatory reduction instrument or by a resolution instrument. (2) A transfer takes effect by virtue of the instrument or order (and in accordance with its provisions as to timing or other ancillary matters). (3) A transfer takes effect despite any restriction arising by virtue of contract or legislation or in any other way. (4) In subsection (3) “restriction” includes— (a) any restriction, inability or incapacity affecting what can and cannot be assigned or transferred (whether generally or by a particular person), and (b) a requirement for consent (by any name). (5) A share transfer instrument or order, a mandatory reduction instrument or a resolution instrument may provide for a transfer to take effect free from any trust, liability or other encumbrance (and may include provision about their extinguishment). (6) A share transfer instrument or order, a mandatory reduction instrument or a resolution instrument may extinguish rights to acquire securities falling within Class 1 or 2 in section 14.
Propose a change(1) A share transfer instrument or order may provide for a transferee to be treated for any purpose connected with the transfer as the same person as the transferor. (2) A share transfer instrument or order may provide for agreements made or other things done by or in relation to a transferor to be treated as made or done by or in relation to the transferee. (3) A share transfer instrument or order may provide for anything (including legal proceedings) that relates to anything transferred and is in the process of being done by or in relation to the transferor immediately before the transfer date, to be continued by or in relation to the transferee. (4) A share transfer instrument or order may modify references (express or implied) in an instrument or document to a transferor. (5) A share transfer instrument or order may require or permit— (a) a transferor to provide a transferee with information and assistance; (b) a transferee to provide a transferor with information and assistance. (5A) This section applies to a mandatory reduction instrument as it applies to a share transfer instrument; and in relation to a mandatory reduction instrument references in this section to a “transfer” are to a transfer of securities (whether made by that or another mandatory reduction instrument) and “transferor” and “transferee” are to be read accordingly. (6) This section applies to a resolution instrument as it applies to a share transfer instrument; and in relation to a resolution instrument references in this section to a “transfer” are to a transfer of securities (whether made by that or another resolution instrument) and “transferor” and “transferee” are to be read accordingly.
Propose a change(1) A share transfer instrument or order may provide for securities to be converted from one form or class to another. (2) A share transfer instrument or order may provide for the listing of securities, under section 74 of the Financial Services and Markets Act 2000, to be discontinued or suspended. (3) Where the listing of securities is suspended in accordance with a share transfer instrument or order, those securities are to be treated for the purposes of section 96 of, and paragraph 23(6) of Schedule 1ZA to, the Financial Services and Markets Act 2000 as still being listed.
Propose a change(1) A share transfer instrument may enable the Bank of England— (a) to remove a director or senior manager of a specified bank; (b) to vary the service contract of a director or senior manager of a specified bank; (c) to terminate the service contract of a director or senior manager of a specified bank; (d) to appoint a director or senior manager of a specified bank. (1A) Subsection (1) also applies to a director or senior manager of any undertaking which is a banking group company in respect of a specified bank. (2) A share transfer order may enable the Treasury— (a) to remove a director or senior manager of a specified bank; (b) to vary the service contract of a director or senior manager of a specified bank; (c) to terminate the service contract of a director or senior manager of a specified bank; (d) to appoint a director or senior manager of a specified bank. (3) Appointments under subsection (1)(d) are to be on terms and conditions agreed with the Bank of England. (4) Appointments under subsection (2)(d) are to be on terms and conditions agreed with the Treasury. (5) In this section “senior manager” means a person who— (a) exercises executive functions within a specified bank or banking group company, and (b) is responsible, and directly accountable to the directors, for the day to day management of that bank or banking group company.
Propose a change(1) A share transfer instrument or order may permit or require the execution, issue or delivery of an instrument. (2) A share transfer instrument or order may provide for a transfer to have effect irrespective of— (a) whether an instrument has been produced, delivered, transferred or otherwise dealt with; (b) registration. (3) A share transfer instrument or order may provide for the effect of an instrument executed, issued or delivered in accordance with the instrument or order. (4) A share transfer instrument or order may modify or annul the effect of an instrument. (5) A share transfer instrument or order may— (a) entitle a transferee to be registered in respect of transferred securities; (b) require a person to effect registration.
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Propose a change(1) A share transfer instrument or order may include incidental, consequential or transitional provision. (2) In relying on subsection (1) a share transfer instrument or order— (a) may make provision generally or only for specified purposes, cases or circumstances, and (b) may make different provision for different purposes, cases or circumstances.
Propose a change(1) As soon as is reasonably practicable after making a share transfer instrument in respect of a bank the Bank of England shall send a copy to— (a) the bank, (b) the Treasury, (c) the PRA, (ca) the FCA, and (d) any other person specified in the code of practice under section 5. (2) As soon as is reasonably practicable after making a share transfer instrument the Bank of England shall publish a copy— (a) on the Bank's internet website, ... (b) in two newspapers, chosen by the Bank of England to maximise the likelihood of the instrument coming to the attention of persons likely to be affected, and (c) if securities issued by the bank have been admitted to trading on a regulated market (within the meaning of section 103(1) of the Financial Services and Markets Act 2000), by means of a regulatory information service (within the meaning of section 313D of that Act), and arrange for the publication of a copy on the internet website of the bank in respect of which the instrument was made. (3) Where the Treasury receive a copy of a share transfer instrument under subsection (1) they shall lay a copy before Parliament.
Propose a change