C1C2Part 1Special Resolution Regime
Pt. 1: power to amend conferred (1.3.2014) by Financial Services (Banking Reform) Act 2013 (c. 33), ss. 17(3)(f), 148(5); S.I. 2014/377, art. 2(1)(b), Sch. Pt. 2
F2Chapter 3 Special resolution action
Pt. 1 Ch. 3 formed from ss. 4-83 (1.1.2015) by The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 7
F1Mandatory write-down, conversion etc of capital instruments
Ss. 6A-6D and cross-heading inserted (1.1.2015) by The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 10
6CMandatory reduction instruments: implementation of requirements of section 6B
1
Where the principal amount of a relevant capital instrument F4or 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 F5or the relevant internal liability remains under, or in connection with, so much of the amount of the instrument F6or relevant internal liability as constitutes the reduction, except for—
i
any liability already accrued in a case where the principal amount of the instrument F6or 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 F7or 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 F8or relevant internal liabilities in accordance with subsection (4).
3
In order to effect a conversion of relevant capital instruments F9or 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 F9or relevant internal liabilities.
4
The relevant capital instruments F3or relevant internal liabilities may only be so converted if—
a
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 F13Treasury,
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 F10or relevant internal liabilityF14represents appropriate compensation to the affected creditor for any loss incurred in consequence of the conversion of that instrument or liability.
F154A
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,
F16...
“UK parent undertaking” means a parent undertaking that is incorporated in, or formed under the law of, any part of the United Kingdom.
Pt. 1 restricted (7.1.2010) by Banking Act 2009 (Exclusion of Insurers) Order 2010 (S.I. 2010/35), arts. 1, 2