Legalize / United Kingdom / Public General Act

Banking Act 2009

Type Public General Act

Publication 2009-02-12

Last updated 2026-01-19

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(b) make provision about the timing of actions to be taken in connection with the making and approval of the plan;

(c) enable any provision that the Bank of England has power under paragraph (a) or (b) to make in the instrument to be made instead in an agreement between the Bank of England and the person required to draw up the business reorganisation plan.

(7A) The Bank of England may make technical standards which—

(a) require progress reports mentioned in subsection (1)(c) to include such matters as are specified in the technical standards; or

(b) otherwise relate to the content of those progress reports, so far as dealing with matters so specified.

(8) For the purposes of subsection (2)(b) the viability of a bank is to be assessed by reference to whether the bank satisfies, and (if so) for how long it may be expected to continue to satisfy, the threshold conditions (as defined in section 55B of the Financial Services and Markets Act 2000).

48I

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48J

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48K

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48L

(1) A resolution instrument may—

(a) cancel or modify any securities to which this subsection applies;

(b) convert any such securities from one form or class into another.

(2) Subsection (1) applies to securities issued by the bank that fall within Class 1 in section 14.

(3) A resolution instrument may—

(a) make provision with respect to rights attaching to securities issued by the bank;

(b) provide for the listing of securities issued by the bank to be discontinued or suspended.

(c) provide for the listing or admission to trading on a regulated market of securities in class 1 (and related class 3 securities) created in accordance with that or any other resolution instrument;

(d) provide for the listing or admission to trading on a regulated market of existing securities in class 2 modified by that or any other resolution instrument ....

(4) The reference in subsection (1)(b) to converting securities from one form or class into another includes creating a new security in connection with the modification of an existing security.

(4A) In subsection (2) any reference to a class of securities is to be construed in accordance with section 14.

(5) The provision that may be made under subsection (3)(a) includes, for example—

(a) provision that specified rights attaching to securities are to be treated as having been exercised;

(b) provision that the Bank of England, or a resolution administrator, is to be treated as authorised to exercise specified rights attaching to securities;

(c) provision that specified rights attaching to securities may not be exercised for a period specified in the instrument.

(6) In subsection (3)—

(a) the reference to “listing” is to listing under section 74 of the Financial Services and Markets Act 2000, and

(b) “regulated market” has the meaning given in section 103(1) of the Financial Services and Markets Act 2000.

(6A) Where the listing of securities is suspended in accordance with a resolution instrument, those securities are to be treated for the purposes of section 96 of, and paragraph 23(6) of Schedule 1ZA to, the Financial Services and Markets Act 2000 as still being listed.

(7) The provision that may be made under this section in relation to any securities is in addition to any provision that the Bank of England may have power to make in relation to them under section 48B.

48M

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48N

(1) A resolution instrument may enable the Bank of England—

(a) to remove a director or senior manager of a specified bank;

(b) to vary the service contract of a director or senior manager of a specified bank;

(d) to appoint a director or senior manager of a specified bank.

(2) Subsection (1) also applies to a director or senior manager of any undertaking which is a banking group company in respect of a specified bank.

(3) Appointments under subsection (1)(d) are to be on terms and conditions agreed with the Bank of England.

(4) In this section “senior manager” means a person who—

(a) exercises executive functions within a specified bank or banking group company, and

(b) is responsible, and directly accountable to the directors, for the day to day management of that bank or banking group company.

48O

(1) A resolution instrument may—

(a) require one or more directors of the bank to comply with any general or specific directions that may be set out in the instrument;

(b) enable the Bank of England to give written directions (whether general or specific) to one or more directors of the bank.

(2) A director—

(a) is not to be regarded as failing to comply with any duty owed to any person (for example, a shareholder, creditor or employee of the bank) by virtue of any action or inaction in compliance with a direction given under subsection (1)(a) or (b);

(b) is to be immune from liability in damages in respect of action or inaction in accordance with a direction.

(3) A director must comply with a direction within the period of time specified in the direction, or if no period of time is specified, as soon as reasonably practicable.

(4) A direction under subsection (1)(a) or (b) is enforceable on an application made by the Bank of England, by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.

(5) See also section 83ZR for further provision about enforcement of a direction under this section.

48P

(1) In this section “protected arrangements” means security interests, title transfer collateral arrangements, set-off arrangements and netting arrangements.

(2) In subsection (1)—

“netting arrangements” means arrangements under which a number of claims or obligations can be converted into a net claim or obligation, and includes, in particular, “close-out” netting arrangements, under which actual or theoretical debts are calculated during the course of a contract for the purpose of enabling them to be set off against each other or to be converted into a net debt;

“security interests” means arrangements under which one person acquires, by way of security, an actual or contingent interest in the property of another;

“set-off arrangements” means arrangements under which two or more debts, claims or obligations can be set off against each other;

“title transfer collateral arrangements” means arrangements under which Person 1 transfers assets to Person 2 on terms providing for Person 2 to transfer assets if specified obligations are discharged.

(3) The Treasury may by order—

(a) restrict the exercise of any power within the scope of this paragraph in cases that involve, or where the exercise of the power might affect, protected arrangements;

(b) impose conditions on the exercise of any power within the scope of this paragraph in cases that involve, or where the exercise of the power might affect, protected arrangements;

(c) require any instrument that makes special bail-in provision to include specified provision, or provision to a specified effect, in respect of or for purposes connected with protected arrangements;

(d) provide for an instrument to be void or voidable, or for other consequences to arise, if or in so far as the instrument is made or purported to be made in contravention of a provision of the order (or of another order under this section);

(e) specify principles to which the Bank of England is to be required to have regard in exercising specified powers—

(i) that involve protected arrangements, or

(ii) where the exercise of the powers might affect protected arrangements.

(4) References to exercising a power within the scope of paragraph (a) or (b) of subsection (3) are to making an instrument containing provision made in reliance on section 12A(3)(a) or 44B (special bail-in provision).

(5) An order may apply to protected arrangements generally or only to arrangements—

(a) of a specified kind, or

(b) made or applying in specified circumstances.

(6) An order may include provision for determining which arrangements are to be, or not to be, treated as protected arrangements; in particular, an order may provide for arrangements to be classified not according to their description by the parties but according to one or more indications of how they are treated, or are intended to be treated, in commercial practice.

(7) In this section “arrangements” includes arrangements which—

(a) are formed wholly or partly by one or more contracts or trusts;

(b) arise under or are wholly or partly governed by the law of a country or territory outside the United Kingdom;

(d) involve any number of parties;

(e) operate partly by reference to other arrangements between parties.

(8) An order—

(a) is to 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.

48Q

(1) A resolution instrument may provide for anything (including legal proceedings) that relates to anything affected by the instrument and is in the process of being done immediately before the instrument takes effect to be continued from the time the instrument takes effect.

(2) A resolution instrument may modify references (express or implied) in an instrument or document.

(3) A resolution instrument may require or permit any person to provide information and assistance to the Bank of England or another person, for the purposes of or in connection with provision made or to be made in that or another resolution instrument.

48R

(1) A resolution instrument may permit or require the execution, issue or delivery of an instrument.

(2) A resolution instrument may provide for any provision in the instrument to have effect irrespective of—

(a) whether an instrument has been produced, delivered, transferred or otherwise dealt with;

(b) registration.

(3) A resolution instrument may provide for the effect of an instrument executed, issued or delivered in accordance with the resolution instrument.

(4) A resolution instrument may—

(a) entitle a person to be registered in respect of a security;

(b) require a person to effect registration.

48S

(1) Provision made in a resolution instrument takes effect despite any restriction arising by virtue of contract or legislation or in any other way.

(2) A resolution instrument may include incidental, consequential or transitional provision.

(3) In relying on subsection (2) a resolution instrument—

(a) may make provision generally or only for specified purposes, cases or circumstances, and

(b) may make different provision for different purposes, cases or circumstances.

48T

(1) As soon as is reasonably practicable after making a resolution instrument in respect of a bank the Bank of England must send a copy to—

(a) the bank,

(b) the Treasury,

(d) the FCA, and

(e) any other person specified in the code of practice under section 5.

(2) As soon as is reasonably practicable after making a resolution instrument the Bank of England must publish a copy—

(a) on the Bank's internet website, ...

(b) in two newspapers, chosen by the Bank of England to maximise the likelihood of the instrument coming to the attention of persons likely to be affected, and

(c) if securities issued by the bank have been admitted to trading on a regulated market (within the meaning of section 103(1) of the Financial Services and Markets Act 2000), by means of a regulatory information service (within the meaning of section 313D of that Act)),

and arrange for the publication of a copy on the internet website of the bank in respect of which the instrument was made.

(3) Where the Treasury receive a copy of a resolution instrument under subsection (1) they must lay a copy before Parliament.

48U

(1) This section applies where the Bank of England has made a resolution instrument (“the original instrument”) with respect to a bank.

(2) The Bank of England may make, with respect to the bank, one or more resolution instruments designated by the Bank of England as supplemental resolution instruments.

(3) Section 7 does not apply to a supplemental resolution instrument (but it is to be treated in the same way as a resolution instrument for all other purposes, including for the purposes of the application of a power under this Part).

(4) Before making a supplemental resolution instrument the Bank of England must consult—

(a) the PRA,

(b) the FCA, and

(5) The possibility of making a supplemental resolution instrument in reliance on subsection (2) is without prejudice to the possibility of making a new instrument in accordance with section 12A(2) (and not in reliance on subsection (2) above).

48V

(1) This section applies where the Bank of England has made a resolution instrument (“the original instrument”) providing for securities issued by a specified bank to be transferred to any person.

(2) The Bank of England may make one or more onward transfer resolution instruments.

(3) An onward transfer resolution instrument is a resolution instrument which—

(a) provides for the transfer of—

(i) securities which were issued by the bank before the original instrument and have been transferred by the original instrument or a supplemental resolution instrument, or

(ii) securities which were issued by the bank after the original instrument;

(b) makes other provision for the purposes of, or in connection with, the transfer of securities issued by the bank (whether the transfer has been or is to be effected by that instrument, by another instrument or otherwise).

(4) An onward transfer resolution instrument may not transfer securities to the transferor under the original instrument.

(5) Section 7 does not apply to an onward transfer resolution instrument (but it is to be treated in the same way as any other resolution instrument for all other purposes, including for the purposes of the application of a power under this Part).

(6) Before making an onward transfer resolution instrument the Bank of England must consult—

(a) the PRA,

(b) the FCA, and

(7) Section 48U applies where the Bank of England has made an onward transfer resolution instrument.

48W

(1) This section applies where the Bank of England has made an instrument (“the original instrument”) that is either—

(a) a resolution instrument providing for the transfer of securities issued by a bank to a person (“the transferee”), or

(b) an onward transfer resolution instrument (see section 48V) providing for the transfer of securities issued by a bank to a person (“the onward transferee”).

(2) In a case falling within subsection (1)(a) the Bank of England may make one or more reverse transfer resolution instruments in respect of securities issued by the bank and held by the transferee (whether or not they were transferred by the original instrument).

(3) In a case falling within subsection (1)(b), the Bank of England may make one or more reverse transfer resolution instruments in respect of securities issued by the bank and held by the onward transferee.

(4) A reverse transfer resolution instrument is a resolution instrument which—

(a) provides for transfer to the transferor under the original instrument;

(b) makes other provision for the purposes of, or in connection with, the transfer of securities which are, or could be or could have been, transferred under paragraph (a).

(5) Except where subsection (6) applies, the Bank of England may make a reverse transfer resolution instrument under subsection (2) only with the written consent of the transferee.

(6) This subsection applies where the transferee is—

(a) a resolution administrator, or

(b) a person who is not to be authorised to exercise any rights attaching to the securities except on the Bank of England's instructions.

(7) The Bank of England may make a reverse transfer resolution instrument under subsection (3) only with the written consent of the onward transferee.

(8) Section 7 does not apply to a reverse transfer resolution instrument (but it is to be treated in the same way as any other resolution instrument for all other purposes including for the purposes of an application of a power under this Part).

(9) Before making a reverse transfer resolution instrument the Bank of England must consult—

(a) the PRA,

(b) the FCA, and

(10) Section 48U applies where the Bank of England has made a reverse transfer resolution instrument.

60A

(1) The Treasury may make regulations about compensation arrangements in the case of—

(a) resolution instruments under section 12A(2) and supplemental resolution instruments under section 48U(2), and

(b) instruments (made under any provision) that include special bail-in provision.

(2) Regulations may—

(a) require a resolution fund order, a compensation scheme order, a third party compensation order or a bail-in compensation order to include provision of a specified kind or to specified effect;

(b) make provision that is to be treated as forming part of any such order (whether (i) generally, (ii) only if applied, (iii) unless disapplied, or (iv) subject to express modification).

(3) Regulations may provide for whether compensation is to be paid, and if so what amount is to be paid, to be determined by reference to any factors or combination of factors; in particular, the regulations may provide for entitlement—

(a) to depend in part upon the amounts which are or may be payable under a resolution fund order;

(b) to be contingent upon the occurrence or non-occurrence of specified events;

(c) to be determined wholly or partly by an independent valuer (within the meaning of sections 54 to 56) appointed in accordance with a compensation scheme order or bail-in compensation order.

(4) Regulations may make provision about payment including, in particular, provision for payments—

(a) on account subject to terms and conditions;

(b) by instalment.

(5) Regulations—

(a) are to 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.

60B

(1) In making regulations under section 60A the Treasury must, in particular, have regard to the desirability of ensuring that pre-resolution shareholders and creditors of a bank do not receive less favourable treatment than they would have received had the bank entered insolvency immediately before the coming into effect of the initial instrument.

(2) References in this section to the initial instrument are—

(a) in relation to compensation arrangements in the case of property transfer instruments under section 11(2), 12(2) or 12ZA(2), to the first instrument to be made under those provisions with respect to the bank;

(b) in relation to compensation arrangements in other cases, to the first resolution instrument to be made under section 12A with respect to the bank.

(3) The “pre-resolution shareholders and creditors” of a bank are the persons who held securities issued by the bank, or were creditors of the bank, immediately before the coming into effect of the initial instrument.

(4) References in this section to insolvency include a reference to (i) liquidation, (ii) bank insolvency, (iii) administration, (iv) bank administration, (v) receivership, (vi) composition with creditors, and (vii) a scheme of arrangement.

81B

(1) The Bank of England may exercise a stabilisation power in respect of a banking group company in accordance with section 11(2) or 12(2) if the following conditions are met.

(2) Condition 1 is that—

(a) the PRA is satisfied that Condition 1 of the general conditions is met in respect of a bank in the same group and the Bank of England is satisfied that Conditions 2, 3 and 4 of the general conditions are met in respect of that bank, or

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) a relevant third-country authority of a third-country institution in the same group is satisfied that any conditions required by the law of the third country to be met before third-country resolution action may be taken are met in relation to that third-country institution.

(2A) For the purposes of determining if a requirement of Condition 1 is met, the PRA, Bank of England ... or relevant third-country authority (as the case may be) may ignore any transfer of losses or capital made between members of the group.

(3) Condition 2 (which does not apply in a financial assistance case) is that the Bank of England is satisfied that the exercise of the power in respect of the banking group company is necessary, having regard to the public interest in the advancement of one or more of the special resolution objectives.

(4) Condition 3 (which applies only in a financial assistance case) is that—

(a) the Treasury have recommended the Bank of England to exercise a stabilisation power on the grounds that it is necessary to protect the public interest, and

(b) in the Bank's opinion, exercise of the power in respect of the banking group company is an appropriate way to provide that protection.

(5) Condition 4 is that the banking group company is an undertaking incorporated in, or formed under the law of any part of, the United Kingdom.

(6) Before determining whether Condition 2 or 3 (as appropriate) is met, the Bank of England must consult—

(a) the Treasury,

(b) the PRA, and

(7) In exercising a stabilisation power in reliance on this section the Bank of England must have regard to the need to minimise the effect of the exercise of the power on other undertakings in the same group.

(8) In this section “financial assistance case” means a case in which the Treasury notify the Bank of England that they have provided financial assistance in respect of a bank in the same group for the purpose of resolving or reducing a serious threat to the stability of the financial systems of the United Kingdom.

(9) In this section—

“the general conditions” means the general conditions for the exercise of a stabilisation power set out in section 7;

“relevant third-country authority” has the meaning given by section 81AA(14);

“third-country institution” has the meaning given by section 89H(7);

“third-country resolution action” has the meaning given by section 89H(7).

81C

(1) In the following provisions references to banks include references to banking group companies—

(a) section 10(1), ...

(aa) section 48Z, and

(b) section 75(5)(a).

(1A) Where section 6B applies to a banking group company by virtue of section 81AA, sections 6B to 6D apply with the following modifications—

(a) references to the bank are to be read as references to the banking group company,

(aa) where Case 4 in section 81AA applies, section 6B(2) is to be read as providing that “the mandatory reduction provision” is provision which, together with the mandatory reduction provision made in respect of any other subsidiary of the resolution entity that is in the same resolution group as the banking group company, produces the results referred to in subsection (1AA) of this section,

(b) in section 6B, in subsection (8) the reference to section 6A is to be read as a reference to section 81AA and subsection (9) is to be ignored,

(c) in sections 6B and 6C references, which (by virtue of paragraph (a)) are read as references to a UK parent undertaking of a banking group company, include, where the banking group company satisfied section 81D(1)(a) by reference to a bank which is not a UK parent undertaking of the banking group company, a reference to that bank,

(d) for the purposes of section 6D, references to a bank in sections 48L(3), 48O and 48T are to be read as references to the banking group company, and, where the banking group company satisfied section 81D(1)(a) by reference to a bank (“the failing bank”), those references to a bank (except the first reference in section 48T(1)) are also to be read as including a reference to the failing bank.

(1AA) The results are that—

(a) the principal amount of the relevant capital instruments or relevant internal liabilities of the banking group company is reduced, or

(b) such instruments or liabilities of the banking group company are converted (directly or indirectly) into Common Equity Tier 1 instruments,

(or both (a) and (b)) in accordance with the principle that losses of the bank referred to in relation to that banking group company in section 81AA(8A)(a) are effectively passed on to, and the bank is recapitalised by, the resolution entity that is in the same resolution group as the banking group company.

(1B) Where the Bank of England makes a mandatory reduction instrument in respect of a banking group company, section 6E applies (with any necessary modifications) as if the banking group company were a bank.

(2) Where the Bank of England exercises a stabilisation power in respect of a banking group company in reliance on section 81B , 81ZZBA, 81ZBA or 81ZBB, the provisions relating to the stabilisation powers and the bank administration procedure contained in this Act (except sections 7 , 8 and 8ZA) and any other enactment apply (with any necessary modifications) as if the banking group company were a bank.

(3) For the purposes of the application of section 143 (grounds for applying for bank administration order), the reference in subsection (2) to the Bank of England exercising a stabilisation power includes a case where the Bank of England intends to exercise such a power.

81D

(1) In this Part “banking group company” means an undertaking—

(a) which is (or, but for the exercise of a stabilisation power, would be) in the same group as a bank ... or third-country institution (within the meaning of section 81AA(14)), and

(b) in respect of which any conditions specified in an order made by the Treasury are met.

(2) An order may require the Bank of England to consult specified persons before determining whether the conditions are met.

(3) An order—

(a) is to 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.

(4) If an order contains a statement that the Treasury are of the opinion that, by reason of urgency, it is necessary to make the order without complying with subsection (3)(b)—

(a) the order may be made, and

(b) the order lapses unless approved by resolution of each House of Parliament during the period of 28 days (ignoring periods of dissolution, prorogation or adjournment of either House for more than 4 days) beginning with the day on which the order is made.

(5) The lapse of an order under subsection (4)(b)—

(a) does not invalidate anything done under or in reliance on the order before the lapse and at a time when neither House has declined to approve the order, and

(b) does not prevent the making of a new order (in new terms).

(6) Undertakings are in the same group for the purposes of sections 81AA to 81CA and this section if they are group undertakings in respect of each other.

(7) Expressions defined in the Companies Act 2006 have the same meaning in sections 81B to 81CA and this section as in that Act.

Investment firms

89A

(1) This Part applies to investment firms as it applies to banks, subject to the modifications in the following Table—

Provision	Modification
Section 1	Ignore subsection (2)(b).
Section 3	In subsection (1), in the definition of “normal insolvency proceedings” ignore the reference to the bank insolvency procedure.
Section 4	Ignore subsections (2)(b), (6) and (7)(b).
Section 5	Ignore subsection (1)(b).
Section 7	Ignore subsection (7).
. . .	. . .
Section 8ZA	In subsection (5), ignore the reference to the bank insolvency procedure.
Section 12AA	References to normal insolvency proceedings do not include a reference to the bank insolvency procedure.
Section 14	Ignore subsection (5).
Section 60	In subsection (3)(c), ignore the reference to bank insolvency.
Section 60B	In subsection (4), ignore the reference to bank insolvency.
Section 63	In subsection (1A), ignore the reference to bank insolvency.
Section 66	In subsection (1ZA), ignore the reference to bank insolvency.

(2) In the case of investment firms which are FCA-regulated investment firms, in subsection (1) the reference to this Part is a reference to this Part as it applies to FCA-regulated banks by virtue of section 83A.

(3) In this section—

“FCA-regulated bank” has the meaning given by section 83A(2);

“FCA-regulated investment firm” means an investment firm which does not carry on any activity which is a PRA-regulated activity for the purposes of the Financial Services and Markets Act 2000.

...

89B

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89C

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89D

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89E

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89F

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89G

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Additional general powers

Partnerships

Evidence

Fees

Rights in insolvency

Investing in National Loans Fund

Regulations

Payments in error

Delegation of functions

Compensation: valuer

Overview

Compensation: valuer

Tenure

Weekly return

Abolition for cheques

Supplemental

Abolition for cheques

258A

(1) In this Act “investment firm” means a UK institution which is (or, but for the exercise of a stabilisation power, would be) an investment firm for the purposes of Regulation (EU) No. 575/2013 of the European Parliament and of the Council as it forms part of assimilated law.

(2) But “investment firm” does not include—

(a) an institution which is also—

(i) a bank (within the meaning of Part 1),

(ii) a building society (within the meaning of section 119 of the Building Societies Act 1986), or

(iii) a credit union (within the meaning of section 31 of the Credit Unions Act 1979 or Article 2(2) of the Credit Unions (Northern Ireland) Order 1985), or

(b) an institution which is of a class or description specified in an order made by the Treasury.

(3) An order—

(a) is to 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.

(4) If an order contains a statement that the Treasury are of the opinion that, by reason of urgency, it is necessary to make the order without complying with subsection (3)(b)—

(a) the order may be made, and

(b) the order lapses unless approved by resolution of each House of Parliament during the period of 28 days (ignoring periods of dissolution, prorogation or adjournment of either House for more than 4 days) beginning with the day on which the order is made.

(5) The lapse of an order under subsection (4)(b)—

(a) does not invalidate anything done under or in reliance on the order before the lapse and at a time when neither House has declined to approve the order, and

(b) does not prevent the making of a new order (in new terms).

(6) In subsection (1) “UK institution” means an institution which is incorporated in, or formed under the law of any part of, the United Kingdom.

36A

(1) A property transfer instrument may enable the Bank of England—

(a) to remove a director or senior manager of a specified bank;

(b) to vary the service contract of a director or senior manager of a specified bank;

(d) to appoint a director or senior manager of a specified bank.

(2) Subsection (1) also applies to a director or senior manager of any undertaking which is a banking group company in respect of a specified bank.

(3) Appointments under subsection (1)(d) are to be on terms and conditions agreed with the Bank of England.

(4) In this section “senior manager” means a person who—

(a) exercises executive functions within a specified bank or banking group company, and

(b) is responsible, and directly accountable to the directors, for the day to day management of that bank or banking group company.

(5) In this section references to a bank include a resolution company (whether or not it is a bank).

39A

Paragraphs 59, 60 and 108 of Schedule 11 to the Financial Services and Markets Act 2023 (recognised central counterparty rules, membership and recognition) apply in relation to a bank which would be a recognised central counterparty but for paragraph 155(2) of Schedule 11 to that Act (exclusion of banks etc from definition of recognised central counterparty) as they apply in relation to a recognised central counterparty.

159A

This Part applies to investment firms as it applies to banks.

Chapter 1 — Introduction

Chapter 2 — Pre-resolution powers of the Bank of England

3A

(1) In this section “relevant person” means—

(a) an institution authorised for the purpose of the Financial Services and Markets Act 2000 by the PRA or FCA,

(b) a parent of such an institution which—

(i) is a financial holding company or a mixed financial holding company; and

(ii) is established in, or formed under the law of any part of, the United Kingdom, or

(i) is a financial institution authorised by the PRA or FCA, and

(ii) is established in, or formed under the law of any part of, the United Kingdom.

(2) The Bank of England may give directions to a relevant person requiring that person to take measures which, in the opinion of the Bank of England, are required to address impediments to—

(a) the effective exercise of the stabilisation powers, or

(b) the winding up of that person (whether by use of the bank insolvency procedure provided for under Part 2 of this Act or otherwise).

(3) The power conferred by subsection (2) includes a power to direct a relevant person—

(a) to amend a group financial support agreement;

(b) where there is no such agreement, to review the need to enter into one;

(d) to limit that person’s maximum individual and aggregate exposures (with “exposure” for this purpose having the meaning given in the capital requirements regulation);

(e) to produce information which is relevant to the exercise of the stabilisation powers, and to provide that information to the Bank of England;

(f) to dispose of specified assets;

(g) to cease carrying out specified activities, or observe restrictions in relation to the carrying out of specified activities;

(h) to cease the development of new or existing business operations, or observe restrictions in relation to the development of such operations;

(i) in order to ensure that it is possible for the performance of critical functions to be legally or operationally separated from the performance of other functions—

(i) to change its legal or operational structure, or

(ii) so far as it is able to do so, to change the legal or operational structure of a subsidiary;

(j) to establish a financial holding company which is not a subsidiary of an institution, another financial holding company or a mixed financial holding company.

(4) The Bank of England may give directions to a relevant person requiring that person to maintain or issue particular kinds of bail-in liabilities.

(4A) Where the Bank of England gives directions to a relevant person under subsection (4) the bail-in liabilities that the person is required to maintain or issue are referred to, in relation to that person, as “eligible liabilities”.

(4B) The Bank of England may give directions to a relevant person requiring that person—

(a) to maintain a minimum requirement for own funds and eligible liabilities, and

(b) for the purpose of paragraph (a), to change the maturity profile of own funds instruments and eligible liabilities or take other specified steps.

(4C) The Bank of England must not exercise the power under subsection (4B)(b) in relation to the maturity profile of own funds instruments—

(a) in the case of a relevant person which is—

(i) an institution authorised for the purpose of the Financial Services and Markets Act 2000 by the PRA, or

(ii) a parent of such an institution or subsidiary of such an institution or such a parent for the purposes of paragraph (b) or (c) of subsection (1),

without the consent of the PRA, or

(b) in the case of a relevant person to which paragraph (a) does not apply, without the consent of the FCA.

(5) Under subsection (4B), the Bank may, in particular, direct a relevant person to endeavour to re-negotiate any eligible liability or relevant capital instruments issued by that person, for the purpose of ensuring that any decision by the Bank to write down or convert the liability or instrument concerned would have effect under the law which governs that liability or instrument.

(6) The Bank may give directions to a relevant MAHC requiring it to establish a separate financial holding company as a parent of an institution for the purpose of—

(a) facilitating the exercise of the stabilisation powers, or

(b) ensuring that the exercise of a stabilisation power does not have an adverse effect on the non-financial part of the group of the relevant MAHC.

(7) Directions under this section—

(a) must be in writing, and

(b) may be given with general effect or with respect to a particular relevant person or class of relevant persons.

(8) In this section—

“financial holding company” has the meaning given by Article 4.1(20) of the capital requirements regulation;

“financial institution” has the meaning given by Article 4.1(26) of the capital requirements regulation;

“group” has the meaning given in section 3(2)(b);

“group financial support agreement” has the meaning given by section 192JB(4) of the Financial Services and Markets Act 2000;

“institution” (except in the phrase “financial institution”) means a bank , building society (within the meaning of section 119 of the Building Societies Act 1986) or investment firm;

“mixed financial holding company” has the meaning given by Article 4.1(21) of the capital requirements regulation;

“parent” means a parent undertaking within the meaning given by section 1162 of the Companies Act 2006;

“relevant MAHC” means a mixed activity holding company (within the meaning given by Article 4.1(22) of the capital requirements regulation) which has at least one subsidiary which—is an institution, andis not a subsidiary of a financial holding company which is also a subsidiary of the mixed activity holding company; and

“subsidiary” means a subsidiary undertaking within the meaning given by section 1162 of the Companies Act 2006.

3B

(1) A direction given to a relevant person under section 3A must be accompanied by a notice which—

(a) states when the direction takes effect (see subsections (2) and (3)),

(b) gives the Bank of England’s reasons for giving the direction, and,

(c) specifies a reasonable period within which the relevant person may make representations to the Bank about the direction.

(2) The direction may, if the Bank of England reasonably considers it necessary, take effect—

(a) immediately it is given to the relevant person, or

(b) on a later date specified in the direction.

(3) In any other case the direction takes effect when—

(a) it has been confirmed by a notice under subsection (5), and

(b) the period during which the direction may be referred to the Upper Tribunal (under subsection (6)) has expired and, if the matter was so referred, the reference and any appeal against the Tribunal’s determination, has been finally disposed of.

(4) Where representations are made by the relevant person within the period specified under subsection (1)(c), the Bank must, within a reasonable period, consider those representations and decide—

(a) whether to confirm or revoke the direction, and

(b) if the direction is revoked, whether to give a different direction.

(5) The Bank must—

(a) if no representations are made within that specified period, give the relevant person written notice that the direction is confirmed, and

(b) if representations are made, give the relevant person written notice of its decision under subsection (4).

(6) If the relevant person is aggrieved by the confirmation of the direction, that person may refer the matter to the Upper Tribunal.

(7) A notice under subsection (5)(a) or (b) confirming the direction must—

(a) inform the relevant person of the right to refer the matter to the Upper Tribunal, and

(b) indicate the procedure on such a reference.

(8) A notice given under subsection (5)(b) of a decision by the Bank to give a different direction must comply with subsection (1).

(9) The Bank must prepare one or more statements of its policy with respect to the giving of directions under section 3A.

(10) No power conferred by section 3A may be exercised before the statement of policy in relation to the exercise of that power has been published.

Chapter 3 — Special resolution action

Mandatory write-down, conversion etc of capital instruments

6A

(1) Section 6B applies in relation to a bank in the cases set out in subsections (2) to (6).

(2) Case 1 is where—

(a) the conditions imposed by sections 7 to 9 on the exercise of a stabilisation power in respect of the bank are met,

(b) the Bank of England or the Treasury (as the case may be) has decided to exercise the power, and

(3) Case 2 is where—

(a) the PRA is satisfied that Condition 1 in section 7 is met in respect of the bank, and

(b) the Bank of England is satisfied that—

(i) (ignoring section 6B) Condition 2 in section 7 is met, and

(ii) that Condition will continue to be met unless the action required by section 6B is taken in respect of the bank.

(4) Case 3 is where—

(a) the bank is viable,

(b) it is a subsidiary,

(c) relevant capital instruments issued by it are recognised for the purpose of meeting own funds requirements on an individual basis and on a consolidated basis, and

(d) the Bank of England makes a determination that the group of which the bank is a member will not be viable unless the action required by section 6B is taken in relation to those instruments.

(5) Case 4 is where—

(a) the bank is a parent undertaking,

(b) relevant capital instruments issued by the bank are recognised for the purposes of meeting own funds requirements on an individual basis at the level of the parent undertaking or on a consolidated basis, and

(c) the Bank of England makes a determination that the group will not be viable unless the action required by section 6B is taken in relation to those instruments.

(6) Case 5 is where—

(a) extraordinary public financial support is required by the bank other than in circumstances where subsection (5E) of section 7 applies by virtue of paragraph (c) of that subsection, and

(b) the Bank of England is satisfied ... that, in order for the bank to fulfil its own funds requirements, relevant capital instruments of the bank need to be written down or converted into Common Equity Tier 1 instruments (or both).

(7) For the purposes of Case 3, the bank is viable unless—

(a) the PRA is satisfied that the bank is failing or likely to fail (within the meaning of section 7(5C)), and

(b) having regard to timing and other relevant circumstances, the Bank of England is satisfied that it is not reasonably likely that (ignoring section 6B and the stabilisation powers) action will be taken by or in respect of the bank that will result in the bank no longer being a bank which is failing or likely to fail.

(8) For the purposes of Cases 3 and 4 a group is not viable if (and only if)—

(a) the consolidating supervisor is satisfied that a requirement under the capital requirements regulationor CRR rules that applies, on a consolidated basis, to a bank which is a member of the group is infringed (or will in the near future be infringed) in a way that justifies action by the consolidating supervisor, and

(b) having regard to timing and other relevant circumstances (but ignoring section 6B and the stabilisation powers), it is not reasonably likely that action will be taken by or in respect of the bank that will prevent the requirement being infringed.

(9) In this section—

“on a consolidated basis” means on the basis of the consolidated situation,

“consolidated situation” means the situation that results from an entity being treated, for the purposes of the capital requirements regulation or CRR rules (as appropriate), as if that entity and one or more other entities formed a single entity,

“consolidating supervisor” means supervisor responsible for the exercise of supervision of an entity on a consolidated basis,

“group” has the meaning given in section 3(2)(b),

“parent undertaking” has the meaning given by Article 4.1(15)(a) of the capital requirements regulation, and

“subsidiary” has the meaning given by Article 4.1(16) of the capital requirements regulation.

6B

(1) In a case where this section applies, the Bank of England must without delay make—

(a) an instrument in relation to the bank containing the mandatory reduction provision, or

(b) two or more instruments which (taken together) contain that provision.

6C

(1) Where the principal amount of a relevant capital instrument or 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 or the relevant internal liability remains under, or in connection with, so much of the amount of the instrument or relevant internal liability as constitutes the reduction, except for—

(i) any liability already accrued in a case where the principal amount of the instrument or 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 or 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 or relevant internal liabilities in accordance with subsection (4).

(3) In order to effect a conversion of relevant capital instruments or 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 or relevant internal liabilities.

(4) The relevant capital instruments or relevant internal liabilities may only be so converted if—

(a) the Common Equity Tier 1 instruments are issued by the bank, or by a UK parent undertaking of the bank with the agreement of the Bank of England,

(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 Treasury,

(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 or relevant internal liability represents appropriate compensation to the affected creditor for any loss incurred in consequence of the conversion of that instrument or liability.

(4A) 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

(7) In this section—

“parent undertaking” has the meaning given by Article 4.1(15)(a) of the capital requirements regulation,

“UK parent undertaking” means a parent undertaking that is incorporated in, or formed under the law of, any part of the United Kingdom.

6D

(1) The following provisions apply in relation to a mandatory reduction instrument as they apply to a resolution instrument—

(a) section 48L(3) and (5) (powers relating to securities issued by the bank),

(b) section 48O (power to direct directors of the bank),

(d) section 48R (execution and registration of instruments etc),

(e) section 48S (general matters), and

(f) section 48T (procedure).

(2) Where the Bank of England makes one or more mandatory reduction instruments in respect of a bank, the Bank must, on request by the Treasury, report to the Chancellor of the Exchequer about—

(a) the exercise of the power to make a mandatory reduction instrument,

(b) the activities of the bank, and

(3) In relation to the matters in subsection (2)(a) and (b), the report must comply with any requirements that the Treasury may specify.

(4) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.

Valuation before mandatory write-down of capital or stabilisation action

6E

(1) Before the Bank of England makes a mandatory reduction instrument or exercises any stabilisation power in respect of a bank, it must ensure that the assets and liabilities of the bank are valued.

(2) Unless subsection (3) applies, the Bank of England must arrange for the appointment of an independent valuer in accordance with section 62A to carry out a valuation for the purposes of subsection (1).

(3) Where the Bank of England considers that the urgency of the case makes it appropriate to make a mandatory reduction instrument, or exercise a stabilisation power, before a valuation can be carried out by a person appointed in accordance with subsection (2), the Bank may carry out a provisional valuation of the assets and liabilities of the bank for the purposes of subsection (1).

(4) The purpose of a valuation carried out pursuant to subsection (1) is to—

(a) inform the decision as to—

(i) whether the conditions for the making of a mandatory reduction instrument or the exercise of a stabilisation power is satisfied,

(ii) which stabilisation option should be employed,

(iii) the extent to which any shares, capital instruments or eligible liabilities should be cancelled, diluted, transferred, written down or converted through the use of a mandatory reduction instrument or a resolution instrument,

(iv) what assets, liabilities or securities (if any) are to be transferred by a property transfer instrument or a share transfer instrument, and

(v) the value of any consideration to be paid to the bank or the owners of the securities for any assets, liabilities or securities so transferred, and

(b) ensure that the full extent of any losses on the assets of that bank is appreciated at the time the Bank of England makes a mandatory reduction instrument or exercises a stabilisation power.

(5) In carrying out a valuation required under subsection (1), the person carrying out the valuation must—

(a) make prudent assumptions as to possible rates of default and the severity of losses suffered by the bank,

(b) disregard potential financial assistance which may be provided by the Bank of England or the Treasury after the Bank has made any mandatory reduction instrument or exercised any stabilisation power (except for ordinary market assistance offered by the Bank on its usual terms),

(i) the Bank of England and the Treasury may recover expenses incurred in connection with the exercise of a stabilisation power under section 58(2)(b),

(ii) the Bank of England and the Treasury may charge interest or fees in respect of any loans or guarantees provided to the bank after the Bank has made any mandatory reduction instrument or exercised any stabilisation power in respect of it.

(6) The valuation carried out under this section must follow the methodology specified in—

(a) any Commission Regulation containing regulatory technical standards adopted by the European Commission under article 36.16 of the recovery and resolution directive, so far as they are assimilated law, or

(b) technical standards made under subsection (11)(a).

(7) A valuation under subsection (1) must be accompanied by—

(a) a balance sheet of the bank as at the date of the valuation,

(b) a report on the financial position of the bank,

(d) a list of the outstanding liabilities of the bank (including any off-balance sheet liabilities), with the creditors subdivided into classes according to the priority their claims would receive in insolvency proceedings, and

(e) an estimate of the amount that each class of creditors and shareholders might be expected to receive if the bank went into insolvent liquidation.

(8) Where appropriate, the information in subsection (7)(c) may be supplemented by an analysis and estimate of the value of the assets and liabilities of the bank on a market value basis in order to inform the decision referred to in paragraph (a)(iv) or (v) of subsection (4).

(9) Where a provisional valuation is carried out under subsection (3), the Bank need only comply with subsection (7) as far as it is reasonable to do so in the circumstances.

(10) A provisional valuation carried out under subsection (1) must make provision in respect of additional losses by the bank in accordance with—

(a) any Commission Regulation containing regulatory technical standards adopted by the European Commission under article 36.16 of the recovery and resolution directive, so far are as they are assimilated law, or

(b) technical standards made under subsection (11)(b).

(11) The Bank of England may make technical standards relating to—

(a) the methodology for assessing the value of the assets and liabilities of a bank for the purposes of a valuation under this section;

(b) the methodology for calculating and including a buffer for additional losses in the provisional valuation.

7A

(1) Where the Bank of England is considering the imposition of a requirement under section 3A(2), (4), (4B)(b), (5) or (6), the Bank must consult the PRA and the FCA, and have regard to the potential impact of the requirement on—

(a) the institution in question,

(b) the market for financial services within the United Kingdom, and

(1A) Subsection (1) does not apply in relation to a requirement under section 3A(4) for a person to maintain (but not issue) a particular kind of bail-in liability.

(2) Where the Bank of England is considering the exercise of a stabilisation power in respect of a bank which is a member of a group, the Bank must have regard to—

(a) the need to minimise the effect of the exercise of the power on other undertakings in the same group,

(b) the need to minimise any adverse effects on the financial stability of the United Kingdom, and

(c) the potential effect of the exercise of the power on the financial stability of countries other than the United Kingdom (particularly those ... countries in which any member of that group is operating).

(3) In this section “group” has the meaning given by section 474 of the Companies Act 2006.

8ZA

(1) The Bank of England may exercise a stabilisation power in respect of a bank in accordance with section 12ZA(3) only if satisfied that Conditions A and B are met.

(2) Condition A is that the power is exercised in connection with the exercise of one or more stabilisation powers in respect of the bank, or a company which is a banking group company in relation to the bank, otherwise than for the purposes of the third stabilisation option.

(3) Condition B is that the Bank of England is satisfied that—

(a) the situation of the market for the assets which it is proposed to transfer by the exercise of the stabilisation power is of such a nature that the liquidation of those assets under normal insolvency proceedings could have an adverse effect on one or more financial markets,

(b) the transfer is necessary to ensure the proper functioning of the bank or bridge bank from which the transfer is to be made, or

(4) Before determining whether Conditions A and B are met, and if so how to react, the Bank of England must consult—

(a) the PRA,

(b) the FCA, and

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) The conditions in this section are in addition to the conditions in sections 7 and 8.

8A

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12ZA

(1) The third stabilisation option is to transfer all or part of the business of—

(a) the bank, or

(b) a bridge bank to which shares or property, rights or liabilities of the bank have been transferred under section 12,

to an asset management vehicle.

(2) An “asset management vehicle” is an undertaking which—

(a) is wholly or partially owned (directly or indirectly) by the Bank of England or the Treasury,

(b) is controlled by the Bank of England, and

(c) is created for the purpose of receiving some or all of the assets, rights and liabilities of one or more banks or of one or more bridge banks (or both).

(3) For the purpose of subsection (1) the Bank of England may make one or more property transfer instruments.

(4) An asset management vehicle must manage the assets transferred to it with a view to maximising their value through eventual sale or orderly wind down.

(5) The code of practice under section 5 must include provision about the management and control of asset management vehicles including, in particular, provision about—

(a) setting objectives,

(b) the content of the articles of association,

(d) different arrangements for management and control at different stages, and

(e) eventual disposal.

(6) Where property, rights or liabilities are transferred to an asset management vehicle pursuant to the third stabilisation option, the Bank of England may make one or more supplemental property transfer instruments transferring any of that property, or those rights or liabilities, to one or more other asset management vehicles.

12A

(1) The fourth stabilisation option is exercised by the use of the power in subsection (2).

(2) The Bank of England may make one or more resolution instruments.

(2A) A resolution instrument may contain provision or proposals of any kind mentioned in subsections (3) to (6).

(2B) The power in subsection (2) must be exercised in accordance with section 12AA.

(2C) When the Bank of England exercise that power, at least one resolution instrument must include provision under section 48H(1) (business reorganisation plan).

(3) A resolution instrument may—

(a) make special bail-in provision with respect to a specified bank;

(b) make other provision for the purposes of, or in connection with, any special bail-in provision made by that or another instrument.

(4) A resolution instrument may—

(a) provide for securities issued by a specified bank to be transferred to a resolution administrator (see section 62B) or another person;

(b) make other provision for the purposes of, or in connection with, the transfer of securities issued by a specified bank (whether or not the transfer has been or is to be effected by that instrument, by another resolution instrument or otherwise).

(5) A resolution instrument may set out proposals with regard to the future ownership of a specified bank or of the business of a specified bank, and any other proposals (for example, proposals about making special bail-in provision) that the Bank of England may think appropriate.

(6) A resolution instrument may make any other provision the Bank of England may think it appropriate to make in exercise of specific powers under this Part.

(7) Provision made in accordance with subsection (4) may relate to—

(a) specified securities, or

(b) securities of a specified description.

(8) Where the Bank of England has exercised the power in subsection (4) to transfer securities to a resolution administrator, the Bank of England must exercise its functions under this Part (see, in particular, section 48V) with a view to ensuring that any securities held by a person in the capacity of a resolution administrator are so held only for so long as is, in the Bank of England's opinion, appropriate having regard to the special resolution objectives.

(9) References in this Part to “special bail-in provision” are to provision made in reliance on section 48B.

12AA

(1) When the Bank of England exercises the fourth stabilisation option, it must use the powers conferred by sections 12A, 48B to 48W and 48Z and this section in a way which ensures that—

(a) existing Common Equity Tier 1 instruments of the bank are cancelled, transferred or diluted in accordance with the principle that losses should be borne first by the holders of such instruments,

(b) the principal amount of Additional Tier 1 instruments is reduced or converted (directly or indirectly) into Common Equity Tier 1 instruments (or both), to the extent of the capacity of the Additional Tier 1 instruments,

(c) the principal amount of Tier 2 instruments is reduced or converted (directly or indirectly) into Common Equity Tier 1 instruments (or both), to the extent of the capacity of the Tier 2 instruments,

(d) where the total of any reduction or conversion pursuant to paragraphs (b) and (c) is less than the shortfall amount, the principal amount of subordinated debt that is not within either of those paragraphs is—

(i) reduced or converted (directly or indirectly) into shares or other securities, or both reduced and so converted, in accordance with the hierarchy of claims in normal insolvency proceedings, by the difference or to the extent of the capacity of those instruments, whichever is lower, and

(ii) losses are born by the holders of shares of the bank that are not within paragraph (a), (b) or (c) in accordance with the hierarchy of claims in normal insolvency proceedings,

(e) where the total of any reduction or conversion pursuant to paragraphs (b), (c) and (d), and any reduction or conversion pursuant to subsection (6), is less than the shortfall amount, the principal amount of, or outstanding amount payable in respect of, the remaining bail-in liabilities is reduced or converted (directly or indirectly) into shares or other securities, or both reduced and so converted, in accordance with the hierarchy of claims in normal insolvency proceedings, by the difference or to the extent of their capacity, whichever is lower.

(2) In this section—

“the shortfall amount” means the sum of the amounts referred to in Article 47.3(b) and (c) of the resolution and recovery directive less the amount of any recapitalisation payment required under section 214E of the Financial Services and Markets Act 2000 in relation to the bank in question.

(3) Subsections (1) to (4) of section 6C apply for the purpose of this section as if references in those subsections to section 6B were references to subsection (1)(a) to (c) of this section.

(4) When complying with subsection (1)(d) and (e), the Bank of England must allocate the losses represented by the shortfall amount equally between bail-in liabilities of the same rank by reducing the principal amount of, or outstanding amount payable in respect of, those bail-in liabilities to the same extent in proportion to their value, except where a different allocation of losses amongst liabilities of the same rank is allowed by virtue of section 48B(10) and (11).

(5) Subsection (4) does not prevent excluded liabilities (as defined by section 48B(7A)) from receiving more favourable treatment than bail-in liabilities which are of the same rank in normal insolvency proceedings.

(6) The Bank may take the action required by subsection (1)(e) only if it converts or reduces the principal amount of any instruments referred to in subsection (1)(d) which contain—

(a) terms that provide for the principal amount of the instrument to be reduced on the occurrence of any event that refers to the financial situation, solvency or levels of own funds of the bank, or

(b) terms that provide for the conversion of the instruments to shares on the occurrence of any such event,

in accordance with those terms.

(7) Where the principal amount of an instrument has been reduced, but not to zero, in accordance with terms of the kind referred to in subsection (6)(a) before the application of the bail-in option, the Bank must take the action required by subsection (1) in relation to the residual amount of that principal.

(8) When taking the action required by subsection (1), the Bank must not convert or reduce one class of liabilities while a class of liabilities that is subordinated to that class remains substantially unconverted or the principal amount of those liabilities is not reduced to nil.

(9) For the purpose of subsection (8), excluded liabilities within the meaning of section 48B(7A) are to be ignored.

(10) For the purposes of this section “existing” Common Equity Tier 1 instruments includes Common Equity Tier 1 instruments issued or conferred in the following circumstances—

(a) pursuant to conversion of debt instruments to Common Equity Tier 1 instruments in accordance with contractual terms of the original debt instruments on the occurrence of an event that preceded, or occurred at the same time as, the assessment by the Bank of England that the bank met the conditions in section 7;

(b) pursuant to any previous conversion of relevant capital instruments to Common Equity Tier 1 instruments in accordance with section 6B.

12B

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29A

In this Act “resolution company” means a bridge bank or an asset management vehicle.

39B

(1) A property transfer instrument may provide for the listing of securities, under section 74 of the Financial Services and Markets Act 2000, to be discontinued or suspended.

(2) Where the listing of securities is suspended in accordance with a property transfer instrument, those securities are to be treated for the purposes of section 96 of, and paragraph 23(6) of Schedule 1ZA to, the Financial Services and Markets Act 2000 as still being listed.

41A

(1) This section applies where the Bank of England has made a resolution instrument.

(2) The Bank of England may make one or more property transfer instruments in respect of property, rights or liabilities of the bank.

(3) Section 7 does not apply to a property transfer instrument under subsection (2).

(4) Before making a property transfer instrument under subsection (2) the Bank of England must consult—

(a) the PRA,

(b) the FCA, and

44A

(1) This section applies where the Bank of England has made a property transfer instrument in accordance with section 41A(2) (“the original instrument”).

(2) The Bank of England may make one or more bail-in reverse property transfer instruments in respect of property, rights or liabilities of the transferee under the original instrument.

(3) A bail-in reverse property transfer instrument is a property transfer instrument which—

(a) provides for a transfer to the transferor under the original instrument;

(b) makes other provision for the purposes of, or in connection with, the transfer of property, rights or liabilities which are, or could be or could have been, transferred under paragraph (a) (whether the transfer has been or is to be effected by that instrument or otherwise).

(4) The Bank of England may make a bail-in reverse property transfer instrument only with the written consent of the transferee under the original instrument.

(5) Section 7 does not apply to a bail-in reverse property transfer instrument (but it is to be treated in the same way as any other property transfer instrument for all other purposes, including for the purposes of the application of a power under this Part).

(6) Before making a bail-in reverse property transfer instrument the Bank of England must consult—

(a) the PRA,

(b) the FCA, and

(7) Section 42 (supplemental instruments) applies where the Bank of England has made a bail-in reverse property transfer instrument.

44B

(1) A property transfer instrument within subsection (2) may make special bail-in provision with respect to the bank (see section 48B) .

(2) The instruments referred to in subsection (1) are—

(a) a property transfer instrument under section 11(2), 12(2), 12ZA(3) or 41A(2),

(b) a supplemental property transfer instrument under section 42 in relation to which the original instrument is—

(i) a property transfer instrument under section 11(2), 12(2), 12ZA(3) or 41A(2),

(ii) an onward property transfer instrument under section 43(2), or

(iii) a bridge bank supplemental property transfer instrument under section 44D(2),

(d) a bridge bank supplemental property transfer instrument under section 44D(2).

(3) In the case of—

(a) a property transfer instrument under section 12(2) or 12ZA(3),

(b) a supplemental property transfer instrument under section 42 in relation to which the original instrument is—

(i) a property transfer instrument under section 12(2) or 12ZA(3),

(ii) an onward property transfer instrument under section 43(2), or

(iii) a bridge bank supplemental property transfer instrument under section 44D(2),

(d) a bridge bank supplemental property transfer instrument under section 44D(2),

the power under subsection (1) to make the provision described in section 48B(1)(b) (see also rule 3(a) and (b) of section 48B(5)) includes power to make the provision referred to in subsection (3A).

(3A) The provision referred to in subsection (3) is provision replacing a liability (of any form)—

(a) of the bank, in the case of the instruments within subsection (3)(a) and (b)(i),

(b) of the resolution company mentioned in section 43(1), in the case of the instruments within subsections (3)(b)(ii) and (c), or

(c) of the bridge bank mentioned in section 44D(1), in the case of the instruments within subsections (3)(b)(iii) and (d),

with a relevant security (of any form or class).

(3B) The following are relevant securities for the purpose of subsection (3A)—

(a) in any case, a security of the bank,

(b) where the instrument within subsection (3)(a), or the original instrument, is made under section 12, a security of the bridge bank mentioned in section 12(1),

(c) where the instrument within subsection (3)(a), or the original instrument, is made under section 12ZA, a security of the asset management vehicle mentioned in section 12ZA(1).

(3C) In subsection (3B) references to the original instrument are—

(a) in relation to an instrument within subsection (3)(b), the original instrument referred to in that paragraph,

(b) in relation to an instrument within subsection (3)(c), the original instrument as defined in section 43(1),

(4) Where securities of the bridge bank or asset management vehicle (“B”) are, as a result of subsection (3), held by a person other than the Bank of England, that does not prevent B from being regarded for the purposes of this Part (see particularly section 12(1A) and 12ZA(2)) as being wholly owned by the Bank of England, as long as the Bank of England is entitled to exercise, or control the exercise of, voting rights in respect of all the ordinary shares issued by B.

44C

(1) This section applies where the Bank of England makes a property transfer instrument containing provision made in reliance on section 44B.

(2) The Bank of England must report to the Chancellor of the Exchequer stating the reasons why that provision was made in the case of the liabilities concerned.

(3) If the provision departs from the insolvency treatment principles, the report must state the reasons why it does so.

(4) The insolvency treatment principles are that where an instrument includes special bail-in provision—

(a) the provision made by the instrument must be consistent with treating all the liabilities of the bank in accordance with the priority they would enjoy on a liquidation, and

(b) any creditors who would have equal priority on a liquidation are to bear losses on an equal footing with each other.

(5) A report must comply with any other requirements as to content that may be specified by the Treasury.

(6) A report must be made as soon as reasonably practicable after the making of the property transfer instrument to which it relates.

(7) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.

Replacement of provisional valuation

48X

(1) Where the Bank of England has carried out a provisional valuation under section 6E(3) before making a mandatory reduction instrument or exercising a stabilisation power, the Bank must arrange for the appointment of an independent valuer in accordance with section 62A to carry out a full valuation in accordance with this section as soon as reasonably practicable.

(2) The purpose of the valuation carried out under subsection (1) is to—

(a) ensure the full extent of any losses on the assets of the bank is recognised in the accounting records of the bank, and

(b) inform a decision by the Bank as to whether—

(i) additional consideration should be paid by a bridge bank or asset management vehicle for any property, rights or liabilities transferred by a property transfer instrument, or securities transferred by a share transfer instrument, or

(ii) the Bank should exercise the power under section 48Y(1) to increase or reinstate any liability which has been reduced or cancelled by a resolution instrument.

(3) A valuation carried out under subsection (1) must comply with subsections (5) and (6) of section 6E, and be accompanied by the information required in subsection (7) of that section.

48Y

(1) Where the independent valuation carried out under section 48X(1) produces a higher valuation of the net asset value of the bank than a provisional valuation carried out under section 6E(3), the Bank of England may—

(a) modify any liability of the bank which has been reduced, deferred or cancelled by a mandatory reduction instrument or a resolution instrument so as to increase or reinstate that liability; or

(b) instruct a resolution company to pay additional consideration—

(i) to the bank for any property, rights or liabilities transferred to the resolution company by a property transfer instrument, or

(ii) to the previous holders of securities issued by the bank for any securities transferred to the resolution company by a share transfer instrument.

(2) The power in subsection (1)(a)—

(a) may not be exercised so as to increase the value of the liability beyond the value it would have had if the resolution instrument which reduced, cancelled or deferred it had not been made, and

(b) must be exercised by a mandatory reduction instrument or supplemental resolution instrument (whether or not that instrument contains any other provision authorised by this Part).

Termination rights etc

48Z

(1) In this section—

“crisis management measure” has the meaning given in Article 2.1(102) of the recovery and resolution directive, and accordingly in relation to the United Kingdom means—the exercise of a stabilisation power in relation to the bank by the Bank of England or the Treasury,the appointment of a resolution administrator under section 62B,the recognition by the Bank of England of third-country resolution action (or part of such action) in accordance with Chapter 5 of this Part, orthe exercise by the Bank of a stabilisation power by virtue of section 89I(3) (exercise of powers in support of third-country resolution action);

“crisis prevention measure” ... means—the imposition by the PRA or the FCA under the Bank Recovery and Resolution (No 2) Order 2014 (SI 2014/3348) of a requirement to take relevant measures as described in article 15, 16, or 23 of that Order,,the imposition by the Bank of England of a requirement to take measures to remove impediments to resolvability under section 3A, the taking by the FCA or the PRA of a measure for early intervention under article 111 of the Bank Recovery and Resolution (No. 2) Order 2014, the making of a mandatory reduction instrument by the Bank of England under section 6B , or the appointment by the PRA or the FCA of a person to act as a temporary manager under section 71C of the Financial Services and Markets Act 2000 ;

“default event provision” means a Type 1 or Type 2 default event provision (see subsections (2) and (3));

“group” has the meaning given by section 474 of the Companies Act 2006;

“Part 1 instrument” means—a mandatory reduction instrument,a share transfer instrument,a property transfer instrument, ora resolution instrument.

“recognised third-country resolution action” means third-country resolution action, or a part of such action, recognised by the Bank of England in an instrument under section 89H(2);

“third-country institution” means an institution established in a country or territory other than the United Kingdom that would, if it were established within the United Kingdom, be regarded as a bank, building society, credit union or investment firm;

“third-country parent financial holding company” means a parent financial holding company (within the meaning of Article 4.1(30) of the capital requirements regulation) established or formed under the law of a country or territory outside the United Kingdom;

“third-country parent institution” means a parent institution (within the meaning of Article 4.1(28) of the capital requirements regulation) established or formed under the law of a country or territory outside the United Kingdom;

“third-country parent mixed financial holding company” means a parent mixed financial holding company (within the meaning of Article 4.1(32) of the capital requirements regulation) established or formed under the law of a country or territory outside the United Kingdom;

“third-country parent undertaking” means a third-country parent institution, a third-country parent financial holding company or a third-country parent mixed financial holding company.

(2) A Type 1 default event provision is a provision of a contract or other agreement that has the effect that if a specified event occurs or situation arises—

(a) the agreement is terminated, modified or replaced,

(b) rights or duties under the agreement are terminated, modified or replaced,

(d) a right accrues to terminate, modify or replace rights or duties under the agreement,

(e) a sum becomes payable or ceases to be payable,

(f) delivery of anything becomes due or ceases to be due,

(g) a right to claim a payment or delivery accrues, changes or lapses,

(h) any other right accrues, changes or lapses, or

(i) an interest is created, changes or lapses.

(3) A Type 2 default event provision is a provision of a contract or other agreement that has the effect that a provision of the contract or agreement—

(a) takes effect only if a specified event occurs or does not occur,

(b) takes effect only if a specified situation arises or does not arise,

(d) has effect only while a specified situation lasts,

(e) applies differently if a specified event occurs,

(f) applies differently if a specified situation arises, or

(g) applies differently while a specified situation lasts.

(4) For the purposes of subsections (2) and (3) it is the effect of a provision that matters, not how it is described (nor, for example, whether it is presented in a positive or a negative form).

(5) Subject to subsection (6A), subsection (6) applies where a contract or other agreement—

(a) is entered into by a bank, a third-country institution or a third-country parent undertaking,

(b) is entered into by a subsidiary undertaking of a bank, a third-country institution or a third-country parent undertaking, whose obligations are guaranteed by a company which is a member of the same group as the bank, third-country institution or third-country parent undertaking, or

(c) is entered into by an undertaking which is a member of the same group as a bank, third-country institution, or third country parent undertaking,

and the substantive obligations provided for in the contract or agreement (including payment and delivery obligations and provision of collateral) continue to be performed.

(6) The following are to be disregarded in determining whether a default event provision applies—

(a) a crisis prevention measure, crisis management measure or recognised third-country resolution action taken in relation to the bank, third country institution or a member of the same group as the bank or third country institution, and

(b) the occurrence of any event directly linked to the application of such a measure or action.

(6A) A Part 1 instrument or share transfer order may provide for subsection (6)—

(a) not to apply in relation to a contract or other agreement, or

(b) to apply in relation to a contract or other agreement only to the extent specified by the Bank of England in the instrument or by the Treasury in the order.

(6B) Provision may be made under subsection (6A) only if the Bank of England (in the case of a Part 1 instrument) or the Treasury (in the case of a share transfer order) consider that such provision would advance one or more of the special resolution objectives.

(7) A Part 1 instrument or share transfer order may provide for subsection (8) or (9) to apply (but need not apply either) in circumstances where subsection (6) would not apply.

(8) If this subsection applies, the Part 1 instrument or share transfer order is to be disregarded in determining whether a default event provision applies.

(9) If this subsection applies, the Part 1 instrument or share transfer order is to be disregarded in determining whether a default event provision applies except so far as the instrument or order provides otherwise.

(10) In subsections (7), (8) and (9) a reference to the Part 1 instrument or share transfer order is a reference to—

(a) the making of the instrument or order,

(b) anything that is done by the instrument or order or is to be, or may be, done under or by virtue of the instrument or order, and

(c) any action or decision taken or made under this or another enactment in so far as it resulted in, or was connected to, the making of the instrument or order.

(11) Provision under subsection (7) may apply subsection (8) or (9)—

(a) generally or only for specified purposes, cases or circumstances, or

(b) differently for different purposes, cases or circumstances.

(12) A thing is not done by virtue of a Part 1 instrument or share transfer order for the purposes of subsection (10)(b) merely by virtue of being done under a contract or other agreement rights or obligations under which have been affected by the instrument or order.

52A

(1) Subsection (2) applies if the Bank of England makes—

(a) a resolution instrument under section 12A(2), or

(b) a property transfer instrument under section 41A(2).

(2) The Treasury must make a bail-in compensation order (see section 49(2A)).

(3) A bail-in compensation order may include provision for—

(a) an independent valuer (in which case sections 54 to 56 are to apply);

(b) valuation principles (in which case section 57(2) to (5) is to apply).

Independent valuer: valuation under section 6E or 48X

62A

(1) The Bank of England must make arrangements for the appointment of a person to act as independent valuer for the purposes of a valuation to be conducted under section 6E or 48X.

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