The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018

Made: 20th December 2018

Coming into force in accordance with regulation 1

The Treasury are designated for the purpose of section 2(2) of the European Communities Act 1972 in relation to financial services.

The Treasury make the following Regulations in exercise of the powers conferred by section 2(2) of the European Communities Act 1972 and section 8(1) of, and paragraph 21 of Schedule 7 to, the European Union (Withdrawal) Act 2018 .

A draft of these Regulations has been approved by a resolution of each House of Parliament in accordance with paragraph 2A(3)(a) of Schedule 2 to the European Communities Act 1972 and paragraph 1(1) of Schedule 7 to the European Union (Withdrawal) Act 2018.

Citation and commencement

1

• (1) These Regulations may be cited as the Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018.

• (2) Subject to paragraph (3), these Regulations come into force on exit day.

• (3) The following provisions come into force on the day after the day on which these Regulations are made—

• (a) this regulation,

• (b) in Schedule 1, paragraphs 3(2), 7(2)(b) and 15(3),

• (c) in Schedule 2, paragraph 3(b)(ii),

• (d) in Schedule 3, paragraph 1(29) and

• (e) in Schedule 4, paragraphs 2(2)(c), 4(2)(b) and 7(3).

Amendments of the Banking Act 2009

2

Schedule 1 amends the Banking Act 2009 .

Amendments of other primary legislation

3

Schedule 2 amends—

• (a) the Insolvency Act 1986 and

• (b) the Financial Services (Banking Reform) Act 2013 .

Amendments of the Bank Recovery and Resolution (No.2) Order 2014

4

Schedule 3 amends the Bank Recovery and Resolution (No.2) Order 2014 .

Amendments of other secondary legislation

5

Schedule 4 amends—

• (a) the Banking Act 2009 (Third Party Compensation Arrangements for Partial Property Transfers) Regulations 2009 ,

• (b) the Banking Act 2009 (Restriction of Partial Property Transfers) Order 2009 ,

• (c) the Banking Act 2009 (Restriction of Partial Property Transfers) (Recognised Central Counterparties) Order 2014 ,

• (d) the Banking Act 2009 (Banking Group Companies) Order 2014 ,

• (e) the Bank Recovery and Resolution Order 2014 ,

• (f) the Banking Act 2009 (Mandatory Compensation Arrangements Following Bail-in) Regulations 2014 ,

• (g) the Banking Act 2009 (Restriction of Special Bail-in Provision, etc.) Order 2014 ,

• (h) the Building Societies (Bail-in) Order 2014 and

• (i) the Bank Recovery and Resolution Order 2016 .

Revocation and amendments of retained direct EU legislation

6

The following instruments are revoked—

• (a) Commission Delegated Regulation (EU) 2015/63 of 21 October 2014 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to ex antecontributions to resolution financing arrangements,

• (b) Commission Delegated Regulation (EU) 2016/1434 of 14 December 2015 correcting Delegated Regulation (EU) 2015/63 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to ex antecontributions to resolution financing arrangements and

• (c) Commission Delegated Regulation (EU) 2017/867 of 7 February 2017 on classes of arrangements to be protected in a partial property transfer under Article 76 of Directive 2014/59/EU of the European Parliament and of the Council.

7

The following instruments are amended in accordance with Schedule 5—

• (a) Commission Delegated Regulation (EU) 2016/778 of 2 February 2016 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to the circumstances and conditions under which the payment of extraordinary ex postcontributions may be partially or entirely deferred, and on the criteria for the determination of the activities, services and operations with regard to critical functions, and for the determination of the business lines and associated services with regard to core business lines and

• (b) Commission Delegated Regulation (EU) 2016/860 of 4 February 2016 specifying further the circumstances where exclusion from the application of write-down or conversion powers is necessary under Article 44(3) of Directive 2014/59/EU of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms.

Transitional provisions: pre-exit EEA resolution action

8

• (1) Section 89H of the Banking Act 2009 (recognition of third-country resolution actions) does not apply in relation to any of the following where taken before IP completion day under the law of an EEA State other than the United Kingdom—

• (a) the application of a resolution tool within the meaning of Article 2.1(19) of the recovery and resolution directive;

• (b) the exercise of a resolution power within the meaning of Article 2.1(20) of the recovery and resolution directive;

• (c) any other measure to which Article 66 of the recovery and resolution directive applied immediately before IP completion day.

• (2) In paragraph (1) “recovery and resolution directive” has the meaning given in section 3(1) of the Banking Act 2009.

• (3) Paragraph (1) is without prejudice to the provision made by paragraph 37 of Schedule 8 to the European Union (Withdrawal) Act 2018.

SCHEDULE 1 — Amendments of the Banking Act 2009

Introduction

1

The Banking Act 2009 is amended as follows.

Special resolution regime: introduction

2

Section 3 (interpretation of Part 1) is amended in accordance with paragraphs 3 to 6.

3

• (1) Subsection (1) is amended as follows.

• (2) In the definition of “the capital requirements regulation” at the end insert “ as it had effect on the day on which the Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394) were made, ”.

• (3) In the definition of “critical functions”—

• (a) for “subsection (2)” substitute “ subsections (2) and (2A) ”;

• (b) after “operations” insert “ (wherever carried out) ”;

• (c) omit “in one or more EEA states”;

• (d) in paragraph (a), at the end insert “ of the United Kingdom ”;

• (e) in paragraph (b), at the end insert “ in the United Kingdom ”.

• (4) After that definition insert—

• “FSCS” means the Financial Services Compensation Scheme (established under Part 15 of the Financial Services and Markets Act 2000);

• (5) After that definition insert—

• “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;.

4

In subsection (2), for paragraph (a) (but not the “and” after it) substitute—

(a) Article 6 of Commission Delegated Regulation (EU) 2016/778 (criteria relating to the determination of critical functions) applies,

5

After subsection (2) insert—

(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.

6

After subsection (3) insert—

(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 IP completion day.

Objectives and Code

7

• (1) Section 4 (special resolution objectives) is amended as follows.

• (2) In subsection (4)(a)—

• (a) for the words from “authorised” to “Article 25,” substitute “ authorised or recognised in the United Kingdom in accordance with Article 14 or 25 ”;

• (b) at the end insert “ , as that Regulation had effect on the day on which the Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394) were made ”.

• (3) For subsection (7) substitute—

(7) Objective 5 is to protect investors and depositors to the extent that they have investments or deposits covered by the FSCS.

Mandatory write-down, conversion etc of capital instruments

8

• (1) Section 6A (cases where mandatory write-down, conversion, etc applies) is amended as follows.

• (2) In subsection (4)(d), for the words from the beginning to “directive” substitute “ the Bank of England makes a determination ”.

• (3) In subsection (9)—

• (a) omit the definition of “appropriate authority”;

• (b) in the definition of “consolidated basis” for “Article 2.1(7) of the recovery and resolution directive” substitute “ Article 4.1(47) and (48) of the capital requirements regulation ”.

9

In section 6B (mandatory write-down, conversion, etc of capital instruments), in subsection (9), for the words from “, pursuant” to the end substitute—

(a) pursuant to this section as it applies in relation to a banking group company by virtue of section 81AA, or (b) in the course of applying the bail-in option provided for by section 12A or section 81BA.

10

• (1) Section 6C (mandatory reduction instruments: implementation of requirements of section 6B) is amended as follows.

• (2) In subsection (4)(a)—

• (a) for “parent” (where it first appears) substitute “ UK parent ”, and

• (b) for the words from “resolution” to the end substitute “ Bank of England ”.

• (3) In subsection (4)(b) for “State or a government entity” substitute “ Treasury ”.

• (4) In subsection (4)(d), for the words from “complies” to the end substitute “ represents appropriate compensation to the affected creditor for any loss incurred in consequence of the conversion of that instrument or liability. ”.

• (5) After subsection (4) insert—

(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.

• (6) In subsection (7), omit the definition of “resolution authority”.

Valuation before mandatory write-down of capital or stabilisation action

11

• (1) Section 6E (pre-resolution valuation) is amended as follows.

• (2) For subsection (6) substitute—

(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 retained EU law, or (b) technical standards made under subsection (11)(a)

• (3) For subsection (10) substitute—

(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 retained EU 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.

Exercise of powers: general

12

In section 7 (general conditions for exercise of stabilisation powers), in subsection (5E)(a) for “central banks” substitute “ the Bank of England ”.

13

• (1) Section 7A (effect on other group members, financial stability in EU etc) is amended as follows.

• (2) In the heading, for “EU” substitute “ UK ”.

• (3) In subsection (1)—

• (a) in paragraph (b) for “EEA” substitute “ United Kingdom ”;

• (b) in paragraph (c) for “European Union or of the EEA states” substitute “ United Kingdom ”.

• (4) In subsection (2)—

• (a) in paragraph (b) for the words from “European” to “operating)” substitute “ United Kingdom ”;

• (b) in paragraph (c)—

• (i) for “third countries” in the first place it appears substitute “ countries other than the United Kingdom ”;

• (ii) omit “third” in the second place it appears.

14

In section 8ZA (specific conditions: asset management vehicle), omit subsection (5).

The stabilisation options

15

• (1) Section 11A (private sector purchaser: marketing) is amended as follows.

• (2) In subsection (5)(a) omit “or another EEA state”.

• (3) After subsection (7) insert—

(8) The reference in subsection (7) to Regulation (EU) No 596/2014 is to that Regulation as it had effect on the day on which the Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394) were made.

16

In section 12AA (bail-in: sequence of write-down and conversion of capital instruments and liabilities), in subsection (2), omit the definition of “normal insolvency proceedings”.

Transfer of securities

17

In section 14 (interpretation: “securities”), in subsection (5)(b) for the words from “Regulation” to the end substitute “ the capital requirements regulation ”.

Transfer of property

18

In section 35 (transferable property), in subsection (1)—

• (a) in paragraph (d) at the end insert “ (including under legislation of the European Union) ”;

• (b) in paragraph (e) omit “(including legislation of the European Union)”.

Bail-in option

19

• (1) Section 48B (special bail-in provision) is amended as follows.

• (2) In subsection (8)(g) for the words from “as referred” to the end substitute “ within the meaning of rule 3 of Part 152 (remuneration) of the PRA rulebook (other than persons deemed by virtue of rule 3.2 not to be material risk takers and notified to the PRA in accordance with rule 3.2). ”

• (3) In subsection (8)(j) for the words from “Financial Services Compensation” to the end substitute “ FSCS in relation to levies imposed by the scheme manager under section 213(3)(b) of the Financial Services and Markets Act 2000. ”.

• (4) In subsection (10), omit paragraph (b) (and the “and” before it).

• (5) In subsection (12)(c)—

• (a) for “micro-enterprises, small enterprises or medium-sized enterprises” substitute “ micro, small and medium-sized enterprises ”;

• (b) for “an EEA State” substitute “ the United Kingdom ”.

• (6) After subsection (13) insert—

(13A) The Treasury may by regulations made by statutory instrument make further provision in connection with the exercise of functions under subsection (10) (including provision about further circumstances in which functions under that subsection may or must be exercised). (13B) Regulations under subsection (13A) may— (a) amend subsections (12) and (13) by adding any provision; (b) amend or revoke Commission Delegated Regulation (EU) 2016/860; (c) amend that Regulation by adding, omitting or varying any provision (pending the revocation of the whole Regulation under paragraph (b). (13C) A statutory instrument containing regulations under subsection (13A) may not be made unless a draft of the instrument has been laid before and approved by resolution of each House of Parliament.

• (7) In subsection (14)—

• (a) at the appropriate place insert—

“core business lines” means business lines and associated services which represent material sources of revenue, profit or franchise value for the bank or a group which includes the bank (or in the case of an instrument made in relation to a resolution company, of the resolution company);

• (b) for the words from “ “micro-enterprise”” to the end substitute—

“micro, small and medium-sized enterprises” means micro, small and medium-sized enterprises as defined with regard to the annual turnover criterion referred to in Article 2(1) of the Annex to Commission Recommendation 2003/361/EC.

• (8) After subsection (14) insert—

(15) For the purposes of the definition of “core business lines”— (a) Article 7 of Commission Delegated Regulation (EU) 2016/778 (criteria relating to the determination of core business lines) applies, and (b) “group” has the meaning given by section 3(2)(b). (16) The Treasury may by regulations made by statutory instrument specify criteria for the determination of the business lines and associated services referred to in the definition of “core business lines”. (17) The power conferred by subsection (16) includes— (a) power to amend or revoke Article 7 of Commission Delegated Regulation (EU) 2016/778; and (b) power to amend or repeal subsection (15)(a). (18) A statutory instrument containing regulations under subsection (16) is subject to annulment in pursuance of a resolution of either House of Parliament.