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Banking Act 2009

Type Public General Act

Publication 2009-02-12

State In force

Department Statute Law Database

Source legislation.gov.uk

Reform history JSON API

Part 1 — Special Resolution Regime

Introduction

Application of Part 1: general

1

(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

(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),

(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).

(5) Each of the following has a role in the operation of the special resolution regime—

(a) the Bank of England,

(b) the Treasury,

(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

Investing in National Loans Fund

2

(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

(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.

Interpretation: other expressions

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(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, andare 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, orto 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, andare 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, andby the Bank of England on its own initiative and on its own terms, , orany 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, andwhere 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.

Objectives and code

Special resolution objectives

4

(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

(3) For the purpose of this section the relevant authorities are—

(a) the Treasury,

(b) the PRA,

(ba) the FCA, and

(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.

Code of practice

5

(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,

(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

Code of practice: procedure

6

(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,

(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.

Exercise of powers: general

General conditions

7

(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.

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