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

CHAPTER 2 U.K. Determination of minimum consolidated requirement where the PRA or FCA is the consolidating supervisor

Application and interpretation of Chapter 2 U.K.

125.—(1) This Chapter applies where the PRA or FCA is the consolidating supervisor in relation to a relevant group.

(2) In this Chapter—

F1 ...

“group entity” includes an undertaking which is—

(a)

a parent undertaking of the [F2 UK] parent undertaking; and

(b)

a mixed activity holding company which has at least one subsidiary which—

(i)

is an institution; and

(ii)

is not a subsidiary of a financial holding company which is also a subsidiary of the mixed activity holding company;

“group institution” means—

(a)

the [F3 UK] parent undertaking, if it is a relevant institution;

(b)

a group subsidiary which is a relevant institution;

(c)

a group entity, other than an institution, which is—

(i)

required under article 139 F4 ... to maintain a minimum requirement for own funds and eligible liabilities; F4 ...

(ii)

F5 ...

(d)

where the group resolution plan does not provide for the separate resolution M1 of a subsidiary set up in a third country, that subsidiary if it would be a relevant institution if it were set up in [F6 the UK];

“minimum consolidated requirement” means the requirement for a minimum level of own funds and eligible liabilities of the group institutions F7 ...;

“minimum requirement”, in relation to a group institution, means a minimum requirement for own funds and eligible liabilities F8 ...; and

“netting arrangement”—

(a)

in relation to an institution authorised by the PRA or FCA, means a title transfer collateral arrangement, set-off arrangement or netting arrangement (within the meaning given by section 48(1)(b), (c) and (d) of the Banking Act 2009);

(b)

F9 ...

(3) “Relevant institution”, in the definition of “group institution”, means an institution which—

(a) if authorised by the PRA or FCA, is not a mortgage credit institution within the meaning given in Chapter 1; and

(b) if set up in a country other than the United Kingdom, does not meet criteria which are equivalent in that country to the criteria set out in article 121(2).

Textual Amendments

F1 Words in art. 125(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(a); 2020 c. 1, Sch. 5 para. 1(1)

F2 Word in art. 125(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(b); 2020 c. 1, Sch. 5 para. 1(1)

F3 Word in art. 125(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(c)(i); 2020 c. 1, Sch. 5 para. 1(1)

F4 Words in art. 125(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(c)(ii)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F5 Words in art. 125(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(c)(ii)(bb); 2020 c. 1, Sch. 5 para. 1(1)

F6 Words in art. 125(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(c)(iii); 2020 c. 1, Sch. 5 para. 1(1)

F7 Words in art. 125(2) omitted (28.12.2020) by virtue of The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 47(a)

F8 Words in art. 125(2) omitted (28.12.2020) by virtue of The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 47(b)

F9 Words in art. 125(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(d); 2020 c. 1, Sch. 5 para. 1(1)

Marginal Citations

M1 For the meaning of “resolution” see the recovery and resolution directive, Article 2.1, point (1).

Determination of minimum consolidated requirement U.K.

126.—(1) This article applies for the purpose of determining the minimum consolidated requirement [F10 for each resolution group].

(2) F11 ... The Bank must determine the minimum consolidated requirement, and is solely responsible for the determination.

F12 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) The amount of each group institution's total liabilities must include total liabilities under any derivative contracts held by the institution.

(5) An assessment of total liabilities under a derivative contract must take account of the rights of the parties to the contract to set off or net under a netting arrangement.

(6) [F13 An eligible liability must be excluded] from the amount of the group institution's [F14 own funds and eligible liabilities] if—

(a) the instrument that creates the liability is not issued or fully paid up;

(b) the liability is owed to, or secured or guaranteed by, the institution itself;

(c) the purchase of the instrument that creates the liability was funded directly or indirectly by the institution itself;

(d) the liability has a remaining maturity of less than one year;

(e) the liability arises from a derivative contract held by the institution;

(f) the liability arises from a deposit in respect of which the depositor's rights, in any proceedings relating to the insolvency of the institution, would be preferred to the rights of other creditors; or

(g) the instrument that creates the liability is governed by the law of a third country and the Bank is not satisfied that a decision by the Bank to convert or write down the liability would be effective under that law.

(7) For the purpose of paragraph (6)(d), where the instrument that creates the liability confers on a party to the instrument a right to the repayment of a sum before maturity, the maturity date is the first date on which that party would become entitled to repayment if the right were exercised.

(8) The determination—

(a) must be based on an assessment of the [F15 following criteria—

(i) the need to ensure that each group institution can be resolved by the application of the resolution tools including, where appropriate, by making special bail-in provision within the meaning of section 48B of the Banking Act 2009, in a way that meets the special resolution objectives;

(ii) the need to ensure, in appropriate cases, that each group institution has sufficient eligible liabilities to ensure that, if mandatory reduction provision within the meaning of section 6B of the Banking Act 2009 or special bail-in provision were made—

(aa) losses could be absorbed; and

(ab) the capital ratio and, if applicable, the leverage ratio, of the group institution could be restored,

to a level necessary to enable it to continue to comply with the conditions for authorisation under Part 4A of FSMA and to continue to carry out the activities for which it is authorised;

(iii) the need to ensure that, if the resolution plan anticipates that certain classes of eligible liabilities might be excluded from bail-in under section 48B(10) of the Banking Act 2009 or that certain classes of eligible liabilities might be transferred to a recipient in full under a partial transfer—

(aa) each group institution has sufficient other eligible liabilities or own funds to ensure that losses could be absorbed; and

(ab) the capital ratio and, if applicable, the leverage ratio, of the group institution could be restored,

to the level necessary to enable it to continue to comply with the conditions for authorisation under Part 4A of FSMA and to continue to carry out the activities for which it is authorised;

(iv) the size, the business model, the funding model and the risk profile of each group institution; F16 ...

(v) the extent to which the failure of each group institution would have an adverse effect on financial stability, including, due to its interconnectedness with other institutions or entities or with the rest of the financial system, through contagion to other institutions or entities]; [F17 and

(vi) relevant assessment criteria specified in any Commission Regulation containing regulatory technical standards adopted by the European Commission under Article 45.2 of the recovery and resolution directive, so far as they are retained EU law.] and

(b) must take account of any provision made in the group resolution plan for the separate resolution of a subsidiary set up in a third country.

(9) Where the Bank makes an assessment under paragraph (8)(a) with respect to a group institution authorised by the PRA or FCA, it must make the assessment in consultation with the appropriate regulator.

Textual Amendments

F10 Words in art. 126(1) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 48(a)

F11 Words in art. 126(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 70(2); 2020 c. 1, Sch. 5 para. 1(1)

F12 Art. 126(3) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 70(3); 2020 c. 1, Sch. 5 para. 1(1)

F13 Words in art. 126(6) substituted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), 41(14)(a)

F14 Words in art. 126(6) substituted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), 41(14)(b)

F15 Words in art. 126(8)(a) substituted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 48(d)

F16 Word in art. 126(8)(a)(iv) omitted (31.12.2020) by virtue of S.I. 2018/1394, Sch. 3 para. 70(4)(a) (as substituted by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 77(5)(a))

F17 Art. 126(8)(a)(vi) and word inserted by virtue of S.I. 2018/1394, Sch. 3 para. 70(4)(b) (as substituted) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 77(5)(a))

Joint determination U.K.

F18 127.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F18 Art. 127 omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 71; 2020 c. 1, Sch. 5 para. 1(1)

References to EBA: determination of minimum consolidated requirement U.K.

F19 128.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F19 Art. 128 omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 71; 2020 c. 1, Sch. 5 para. 1(1)

Review of minimum consolidated requirement U.K.

129.—(1) The Bank must review the minimum consolidated requirement [F20 for each resolution group] when, in accordance with Chapter 4 of Part 5, it reviews the group resolution plan.

(2) [F21 Article 126 applies] for the purpose of the review, but have effect for that purpose as if each reference to determining (or the determination of) the minimum consolidated requirement were a reference to re-determining (or the re-determination of) the requirement on review.

Textual Amendments

F20 Words in art. 129(1) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 51

F21 Words in art. 129(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 72; 2020 c. 1, Sch. 5 para. 1(1)