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

CHAPTER 4 Removal of impediments to resolvability of group entities where the PRA or FCA is the consolidating supervisor

Application and interpretation of Chapter 4

68.—(1) This Chapter applies where, in relation to a relevant group—

(a) the PRA or FCA is the consolidating supervisor; and

(b) the Bank, having made an assessment of group resolvability in accordance with Chapter 2, has identified substantive impediments to the resolvability of a group entity (“the impediments”).

(2) In this Chapter—

“group entity” means the EEA parent undertaking or a subsidiary within the relevant group which is—

(a)

an institution

(b)

a financial institution; or

(c)

a parent undertaking of an institution which is either—

(i)

a financial holding company or mixed financial holding company set up in another EEA State; or

(ii)

a qualifying parent undertaking;

“measures for structural change” means—

(a)

measures for changing the legal or operational structure of a group entity in order to ensure, through the application of resolution tools and the exercise of resolution powers, that critical functions can be separated, legally or operationally, from the performance of other functions;

(b)

measures for establishing a parent financial holding company in an EEA State or an EEA parent financial holding company; or

(c)

where an institution is a subsidiary of a relevant MAHC, measures for establishing a financial holding company as a parent undertaking of the institution for the purpose of—

(i)

facilitating the application of resolution tools and the exercise of resolution powers to achieve any of the resolution objectives; or

(ii)

ensuring that applying the resolution tools and exercising the resolution powers does not have an adverse effect on the non-financial part of the group of the relevant MAHC;

“the plan” means the group resolution plan being drawn up for the relevant group (or the group resolution plan which has been adopted for the group and is being reviewed);

“pre-resolution powers” has the same meaning as in Chapter 3;

“qualifying parent undertaking” has the meaning given by section 192B of FSMA(1) (meaning of “qualifying parent undertaking”); and

“remedial measures” means measures to address or remove the impediments.

(3) “Relevant MAHC”, in the definition of “measures for structural change”, means a mixed activity holding company which has at least one subsidiary which—

(a) is an institution; and

(b) is not a subsidiary of a financial holding company which is also a subsidiary of the mixed activity holding company.

Report on substantive impediments to the resolvability of group entities

69.—(1) The Bank, in co-operation with EBA and the appropriate regulator and after consulting the relevant competent authorities, must prepare a report which—

(a) contains an analysis of the impediments;

(b) proposes remedial measures for the impediments; and

(c) examines the impact of the remedial measures on the business of the group entities.

(2) The Bank must submit its report to—

(a) the EEA parent undertaking;

(b) EBA;

(c) the appropriate regulator;

(d) each relevant competent authority;

(e) the resolution authority for any group entity set up in another EEA State; and

(f) the resolution authority established in any EEA State in which an institution within the relevant group has a significant branch.

Suspension of requirement to draw up or review group resolution plan

70.—(1) Where every group entity is set up in the United Kingdom, the submission of the Bank’s report under article 69 has the effect of suspending the Bank’s duty to draw up or review the plan until the Bank determines remedial measures under article 71(3)(c).

(2) Where the plan is being drawn up or reviewed by the Bank jointly with other resolution authorities, the submission of the Bank’s report under article 69 has the effect of suspending the Bank’s duty to endeavour to reach a joint decision on the adoption or review of the plan.

(3) That duty is revived when a joint decision is reached on the determination of remedial measures.

Determining remedial measures

71.—(1) The EEA parent undertaking may, within four months beginning with the date on which it receives the Bank’s report, submit to the Bank its observations on the report and a proposal to take alternative remedial measures (“alternative proposal”).

(2) The Bank must send such observations and any alternative proposal to each of the authorities to which it submitted its report.

(3) Where every group entity is set up in the United Kingdom, the Bank must—

(a) confirm the impediments with or without modification;

(b) assess any alternative proposal; and

(c) determine remedial measures in the exercise of pre-resolution powers—

(i) where the Bank concludes that the measures set out in an alternative proposal would adequately address or effectively remove the impediments, by approving that proposal (with or without modification);

(ii) otherwise, by specifying the measures which are to be taken.

(4) Where the plan is being drawn up or reviewed by the Bank jointly with other resolution authorities, it must consider the assessment of group resolvability within the college and endeavour, jointly with the other resolution authorities and after consulting the supervisory college(2) established for the relevant group, to—

(a) confirm the impediments with or without modification;

(b) assess any alternative proposal; and

(c) determine remedial measures—

(i) where the resolution authorities conclude within the college that the measures set out in an alternative proposal would adequately address or effectively remove the impediments, by approving that proposal (with or without modification);

(ii) otherwise, by joint decision to specify the measures which are to be taken.

(5) The Bank must consult the appropriate regulator and, where appropriate, the Financial Policy Committee before determining remedial measures under paragraph (3)(c).

(6) In considering any matter referred to in paragraph (3) or (4) the Bank must take account of—

(a) the threat to financial stability posed by the impediments; and

(b) the effect of the measures on—

(i) the business and financial stability of each group entity and its ability to contribute to the economy of the United Kingdom and other EEA States;

(ii) the EEA market for financial services;

(iii) the financial stability of any EEA State or of the EEA as a whole.

(7) Paragraphs (8) and (9) apply where remedial measures determined under paragraph (3) or (4) are to be implemented by a group entity set up in the United Kingdom.

(8) The Bank must exercise pre-resolution powers with the object of requiring the entity to take the remedial measures.

(9) In a direction given for that purpose, the Bank—

(a) if it has specified the measures which are to be taken, must demonstrate how the measures set out in an alternative proposal would not adequately address or effectively remove the impediments;

(b) must demonstrate how the remedial measures will adequately address or effectively remove the impediments in a manner proportionate to the burden or restriction imposed by the direction; and

(c) must require the entity to—

(i) prepare a plan showing how it will comply with the remedial measures; and

(ii) submit that plan within one month beginning on the date of the direction.

Joint decision on impediments to group resolvability and remedial measures

72.—(1) The Bank must endeavour to reach a joint decision on the matters referred to in article 71(4) within four months beginning with the date on which—

(a) the EEA parent undertaking submits observations or an alternative proposal under article 71(1); or

(b) if the EEA parent undertaking does not submit observations or an alternative proposal within the period specified in that article, the date on which it ceases to be entitled to do so.

(2) Where the Bank and another resolution authority (“authority A”) are unable to reach a joint decision on a relevant matter within the period referred to in paragraph (1) (“the period for joint decision”), the Bank must—

(a) decide the matter, either alone or jointly with any resolution authority with which it is able to reach a joint decision; and

(b) ensure that—

(i) the decision takes account of the views and reservations of authority A; and

(ii) every group entity for which authority A is the resolution authority is excluded from the scope of the decision and of the plan.

(3) The Bank must give the EEA parent undertaking written notice of a decision under this article, including a reasoned account of the decision.

References to EBA

73.—(1) Where, before the end of the period for joint decision, another resolution authority has referred to EBA in accordance with Article 19 of the EBA Regulation any matter relating to prospective remedial measures which consist of, or include, measures for structural change, the Bank must—

(a) defer a decision on the matter referred for one month beginning with the date on which the period for joint decision ends; and

(b) ensure that the decision conforms with any decision taken by EBA before the end of that month under Article 19.3 of the EBA Regulation.

(2) For the purposes of a reference to EBA of a matter to which this article refers the period for joint decision is deemed to be the conciliation phase referred to in Article 19.2 of the EBA Regulation.

Requesting the assistance of EBA

74.  The Bank may ask EBA to assist the resolution authorities in accordance with Article 31(c) of the EBA Regulation to reach a joint decision on the matters referred to in article 71(4).

(1)

Section 192B was inserted by the Financial Services Act 2012, section 27, which inserted Part 12A of FSMA.

(2)

For the meaning of “supervisory college” see the recovery and resolution directive, Article 2.1, point (52).