The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations implement Directive (EU) 2019/879 of the European Parliament and of the Council of 20th May 2019 amending Directive 2014/59/EU as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms and Directive 98/26/EC (O.J. L150, 7.6.2019, p296).

Chapter 1 of Part 2 extends existing rule making powers of the Financial Conduct Authority under the Financial Services and Markets Act 2000 (c.8). This will empower the FCA to implement restrictions placed by Directive 2014/59 (“BRRD”) on the selling of subordinated eligible liabilities to retail clients. These are a type of liability which relevant persons may be required by the Bank of England (“the Bank”) to maintain or issue.

Chapter 2 of Part 2 amends the Banking Act 2009 (c.1) which is the principal primary legislation upon which the UK relies for compliance with its obligations under the BRRD.

Regulations 5 to 8 amend the Bank’s powers to direct relevant persons to maintain a minimum requirement for own funds and eligible liabilities (“MREL”) and enable it to write-down or convert internal liabilities in specified circumstances where a bank is not a resolution entity, but is in a resolution group. Regulation 10 exempts two new categories of liability from the exercise of a power to make special bail-in provision in relation to a bank. Regulation 24 makes provision equivalent to regulation 5 (which concerns banks established in the United Kingdom) for UK branches of third-country institutions, and regulation 18 sets out the type of mandatory reduction provision that may be made in exercise of the powers conferred by regulation 7.

Regulation 13 specifies additional circumstances where mandatory write-down or conversion of capital instruments and internal liabilities must take place in relation to a banking group company, and regulations 14 and 15 confer supplemental powers on the Bank to sell all or part of the business of a specified type of banking group company to a commercial purchaser, or to transfer it to a bridge bank or an asset management vehicle. Regulation 16 also confers on the Bank supplemental “bail-in” powers in relation to a specified type of banking group company.

Part 3 amends secondary legislation upon which the UK relies for compliance with its obligations in relation to the BRRD. It adds to the definition of “group resolution plan”, and makes further provision concerning resolution plans, the assessment of resolvability of groups, and the removal of impediments to resolvability of institutions and groups. Regulations 45 to 55 relate to the MREL, including omitting provision restricting the manner in which it is to be expressed, and regulations 56 and 57 add provision relating to Union parent undertakings into the provisions about cross-border group resolution.

Part 4 makes provision in exercise of the powers conferred by section 8(1) of the European Union (Withdrawal) Act 2018 (c.16) (“EUWA”) to address failures of retained EU law to operate effectively and other deficiencies arising from the withdrawal of the UK from the EU. In particular, these Regulations address deficiencies under paragraphs (a), (b), (c) and (g) of section 8(2) and transfer functions under section 8(6) of EUWA. The deficiencies are those which are introduced by the implementation of Directive 2019/879.

Part 5 (which is made under the European Communities Act 1972) is to cease to have effect on IP completion day. It makes various provision related to resolution, conferring powers on the Bank to prohibit distributions in particular circumstances, modifying conditions for the exercise of certain stabilisation powers, imposing requirements to include certain contractual terms in contracts, and making amendments to the ranking of debts in insolvency.

A de minimis regulatory impact assessment has been prepared in relation to these Regulations. A copy may be obtained either from the Resilience and Resolution Team, HM Treasury, 1 Horseguards Road, London, SW1A 2HQ or via the Treasury website (www.hm-treasury.gov.uk).