The Bank Recovery and Resolution (No. 2) Order 2014

CHAPTER 4 Determination of minimum requirements for group institutions where the PRA or FCA is the consolidating supervisor

Application and interpretation of Chapter 4

133.—(1) This Chapter applies where the PRA or FCA is the consolidating supervisor in relation to a relevant group.

(2) In this Chapter—

“four month period”, “group entity” and “minimum requirement” have the same meaning for the relevant group as they have for a relevant group in Chapter 2;

“group institution” means a UK institution or a non-UK institution;

“minimum consolidated requirement” means the minimum consolidated requirement (within the meaning given in Chapter 2) which is determined for the relevant group;

“netting arrangement” has the same meaning as in Chapter 2;

“non-UK institution” means—

(a)

the EEA parent undertaking, if it is a relevant institution set up in another EEA State;

(b)

a group subsidiary which is a relevant institution set up in another EEA State;

(c)

a group entity, other than an institution, which is required by a resolution authority other than the Bank to maintain a minimum requirement for own funds and eligible liabilities; and

“UK institution” means—

(a)

the EEA parent undertaking, if it is a relevant institution authorised by the PRA or FCA;

(b)

a group subsidiary which is a relevant institution authorised by the PRA or FCA.

Duties of the Bank in relation to minimum requirement

134.—(1) The Bank must exercise the powers conferred by section 3A of the Banking Act 2009—

(a) to ensure that a UK institution is required at all times to maintain a minimum requirement; and

(b) with the object of ensuring that at all times the institution meets the minimum requirement specified in a direction given for that purpose.

(2) Where the relevant group includes a non-UK institution, the Bank must—

(a) make a provisional determination of the minimum requirement for each UK institution;

(b) give notice of that provisional determination to the resolution authority for the non-UK institution;

(c) endeavour within the college to determine jointly with that resolution authority the minimum requirements for each UK institution and the non-UK institution.

(3) The Bank must inform EBA of the minimum requirement determined for each UK institution.

Determination of minimum requirement

135.—(1) This article applies for the purpose of determining the minimum requirement for a group institution.

(2) The amount of the institution’s total liabilities must include total liabilities under any derivative contracts held by the institution.

(3) An assessment of total liabilities under a derivative contract must take account of the rights of the parties to the contract to set off or net under a netting arrangement.

(4) A liability must be excluded from the amount of the institution’s own funds or eligible liabilities if—

(a) the instrument that creates the liability is not issued or fully paid up;

(b) the liability is owed to, or secured or guaranteed by, the institution itself;

(c) the purchase of the instrument that creates the liability was funded directly or indirectly by the institution itself;

(d) the liability has a remaining maturity of less than one year;

(e) the liability arises from a derivative contract held by the institution;

(f) the liability arises from a deposit in respect of which the depositor’s rights, in any proceedings relating to the insolvency of the institution, would be preferred to the rights of other creditors; or

(g) the instrument that creates the liability is governed by the law of a third country and the Bank is not satisfied that a decision by the Bank to convert or write down the liability would be effective under that law.

(5) For the purpose of paragraph (4)(d), where the instrument that creates the liability confers on a party to the instrument a right to the repayment of a sum before maturity, the maturity date is the first date on which that party would become entitled to repayment if the right were exercised.

(6) The determination—

(a) must be based on an assessment of the criteria set out in Article 45.6 of the recovery and resolution directive; and

(b) must take account of the minimum consolidated requirement.

(7) Where the determination is for a UK institution, the Bank must make the assessment under paragraph (6)(a) in consultation with—

(a) the PRA, if the institution is a PRA-authorised person;

(b) the FCA, if the institution is any other UK authorised person.

Joint determination of minimum requirements

136.—(1) Where the Bank endeavours to determine minimum requirements for group institutions jointly with one or more other resolution authorities under article 134(2)(c), it must endeavour to make the determination within the four month period.

(2) Where the Bank and other resolution authorities are unable within the four month period to make a joint determination of minimum requirements for group institutions, the Bank must determine the minimum requirements for UK institutions.

(3) The Bank must give the EEA parent undertaking and each UK institution written notice of the determination of the institution’s minimum requirement, including a reasoned account of the determination.

References to EBA: determination of minimum requirement

137.—(1) The Bank may, within the four month period, refer any matter relating to the prospective determination of a minimum requirement for a non-UK institution to EBA in accordance with Article 19 of the EBA Regulation.

(2) Paragraph (1) does not apply where a prospective determination is within one percentage point of the minimum consolidated requirement.

Review of minimum requirements

138.—(1) The Bank must review the minimum requirements for group institutions when, in accordance with Chapter 4 of Part 5, it reviews the group resolution plan.

(2) Articles 134 to 137 apply for the purpose of the review, but have effect for that purpose as if each reference to determining (or the determination of) a minimum requirement were a reference to re-determining (or the re-determination of) the requirement on review.

Minimum requirement for other group entities set up in the United Kingdom

139.—(1) The Bank may decide, after consulting the regulator, that a group entity, other than a UK institution, set up in the United Kingdom should be required to maintain a minimum requirement for own funds and eligible liabilities expressed as a percentage of the entity’s total liabilities and own funds.

(2) Where the Bank makes a such decision, articles 134 to 138 apply for the purpose of determining and reviewing the requirement and ensuring that the requirement is maintained and met, but have effect for that purpose as if each reference to an institution, except a reference to a non-UK institution, included a reference to the group entity for which the requirement is being (or has been) determined.

(3) In this article “the regulator”—

(a) where there is a PRA-authorised person and any other UK authorised person in the relevant group, means the PRA and the FCA;

(b) where there is a PRA-authorised person and no other UK authorised person in the relevant group, means the PRA;

(c) where there is no PRA-authorised person in the relevant group, means the FCA.