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

PART 10 Requirement to write down or convert capital instruments

Application and interpretation of Part

149.—(1) This Part applies in relation to a relevant group.

(2) In this Part—

“alternative measure” means—

(a)

a measure for early intervention within the meaning given in Chapter 1 of Part 8;

(b)

a measure referred to in Article 104.1 of the capital requirements directive (supervisory powers); or

(c)

a transfer of funds or capital from a parent undertaking;

“appropriate authority” means the authority authorised under the law of another EEA State to make the determinations referred to in Article 59.3 of the recovery and resolution directive;

“Case 2”—

(a)

in relation to a bank, means Case 2 set out in subsection (3) of section 6A of the Banking Act 2009 (cases where mandatory write-down, conversion, etc applies);

(b)

in relation to a banking group company, means Case 2 set out in subsection (4) of section 81AA of that Act(1) (cases where mandatory write-down, conversion, etc applies: banking group companies);

“Case 3”, in relation to a bank, means Case 3 set out in section 6A(4) of that Act;

“Case 4”, in relation to a bank, means Case 4 set out in section 6A(5) of that Act;

“Case 5”—

(a)

in relation to a bank, means Case 5 set out in section 6A(6) of that Act;

(b)

in relation to a banking group company, means Case 3 set out in section 81AA(8) of that Act;

“non-UK group entity” means a group entity which is set up in another EEA State and has issued recognised capital instruments;

“recognised capital instruments” means Common Equity Tier 1 instruments, Additional Tier 1 instruments or Tier 2 instruments which have been recognised for the purpose of meeting the own funds requirements (within the meaning given in section 3(1) of the Banking Act 2009(2)) of institutions on an individual and a consolidated basis; and

“UK group entity” means a group entity which is a bank or banking group company and has issued recognised capital instruments.

(3) In this article, for the interpretation of expressions defined in paragraph (2)—

“Additional Tier 1 instruments”, “Common Equity Tier 1 instruments” and “Tier 2 instruments” have the meaning given in section 3(1) of the Banking Act 2009(3) (interpretation: other expressions);

“bank” has the meaning given by section 2 of the Banking Act 2009(4) (interpretation: “bank”), but includes—

(a)

a building society within the meaning given in section 119 of the Building Societies Act 1986; and

(b)

an investment firm within the meaning given in section 258A of the Banking Act(5) (“investment firm”);

“banking group company” has the meaning given by section 81D of that Act(6); and

“group entity” includes an undertaking which is—

(a)

a parent undertaking of the EEA parent undertaking; and

(b)

a mixed activity holding company.

Determinations pursuant to Article 59.3 of the recovery and resolution directive: preliminary steps for UK group entities

150.—(1) Before the Bank makes a determination that Case 2, 4 or 5 is satisfied in relation to a UK group entity, the Bank must give notice that it is considering whether to make that determination (“a Case 2, 4 or 5 notice”) without delay—

(a) to the consolidating supervisor; and

(b) if neither the PRA nor the FCA is not the consolidating supervisor, to the appropriate authority in the EEA State in which the consolidating supervisor is established.

(2) Before the Bank makes a determination (where appropriate, jointly with the appropriate authority in the EEA State in which the consolidating supervisor is established) that Case 3 is satisfied in relation to a UK group entity, the Bank must give notice that it is considering whether to make that determination (“a Case 3 notice”) without delay—

(a) to the consolidating supervisor;

(b) unless the PRA or the FCA is the consolidating supervisor, to the appropriate authority in the EEA State in which the consolidating supervisor is established;

(c) to the competent authority established in an EEA State in which a relevant non-UK group entity is set up; and

(d) unless the competent authority referred to in sub-paragraph (c) is the appropriate authority in the State in which it is established, to the appropriate authority in that State.

(3) Where the Bank gives a Case 2, 4 or 5 notice or a Case 3 notice, it must—

(a) send with the notice an explanation of its reasons for considering whether to make the determination concerned; and

(b) after consulting the authorities to which the notice has been given assess whether—

(i) any alternative measure is available;

(ii) any alternative measure which is available could feasibly be taken; and

(iii) there is any reasonable prospect that any alternative measure which is available and could feasibly be taken would, within a reasonable time, avoid the need for the determination.

(4) Where the Bank is considering whether to make a determination that Case 3, 4 or 5 is satisfied in relation to a UK group entity, it must take account of the potential financial impact of the determination in any other EEA State in which that entity conducts business.

(5) In paragraph (2)(c) “relevant non-UK group entity” means a non-UK group entity whose recognised capital instruments are to be written down or converted by the Bank under section 6B of the Banking Act 2009(7) (mandatory write-down, conversion, etc of capital instruments) if the determination set out in the Case 3 notice is made.

Regulator to take alternative measures

151.—(1) Where, in the Bank’s assessment, there is a reasonable prospect that an alternative measure which is available and could feasibly be taken would, within a reasonable time, avoid the need for the determination referred to in a Case 2, 4 or 5 notice or a Case 3 notice—

(a) the Bank must notify the regulator of that fact; and

(b) except where the measure is a transfer of funds from a parent undertaking, the regulator must take the alternative measure in exercise of its powers under FSMA.

(2) In this article “the regulator”—

(a) where there is a PRA-authorised person and any other UK authorised person in the relevant group, means the PRA and the FCA;

(b) where there is a PRA-authorised person and no other UK authorised person in the relevant group, means the PRA;

(c) where there is no PRA-authorised person in the relevant group, means the FCA.

Determination that Case 2, 3, 4 or 5 is satisfied

152.—(1) This article applies where, in the Bank’s assessment, there is no reasonable prospect that any alternative measure which is available and could feasibly be taken would, within a reasonable time, avoid the need for the determination referred to in a Case 2, 4 or 5 notice or a Case 3 notice.

(2) If the notice is a Case 2, 4 or 5 notice, the Bank must decide whether to make the determination referred to in the notice.

(3) If the notice is a Case 3 notice and the PRA or FCA is the consolidating supervisor, the Bank must decide whether to make the determination referred to in the notice.

(4) If the notice is a Case 3 notice and neither the PRA nor the FCA is the consolidating supervisor—

(a) the Bank must endeavour to reach a decision jointly with the appropriate authority in the EEA State in which the consolidating supervisor is established whether to make the determination referred to in the notice; and

(b) if the Bank and that appropriate authority are unable to reach a joint decision on whether to make the determination, the Bank must not make the determination.

Joint determination under Article 59(3)(c) of the recovery and resolution directive in relation to a non-UK group entity

153.—(1) This article applies where—

(a) the PRA or FCA is the consolidating supervisor; and

(b) the Bank receives a relevant notice from the appropriate authority in another EEA State.

(2) “Relevant notice” is a notice stating—

(a) that the appropriate authority is considering whether to make a determination in relation to a non-UK group entity that—

(i) the entity is viable; and

(ii) the relevant group will not be viable unless the authority exercises power pursuant to Article 59 of the recovery and resolution directive to write down or convert the recognised capital instruments issued by the entity; and

(b) that in the authority’s assessment, there is no reasonable prospect that any alternative measure which is available and could feasibly be taken would, within a reasonable time, avoid the need for that determination.

(3) The Bank must endeavour to reach a decision jointly with the authority from which it has received the relevant notice whether that authority may make the determination referred to in the notice.

(1)

Sections 6A and 81AA were inserted by S.I. 2014/3329.

(2)

Section 3 was amended by the Financial Services Act 2012, section 96(2) and Schedule 17, paragraphs 1 and 4, and by S.I. 2014/3329, which inserted the definition of “own funds requirements”.

(3)

These definitions were inserted by S.I. 2014/3329.

(4)

Section 2 was amended by the Financial Services Act 2012, sections 101(1) and (3) and 102(1) and (3) and Schedule 17, paragraph 3, and by S.I. 2011/2832.

(5)

Section 258A was inserted by the Financial Services Act 2012, section 101(1) and (7). See S.I. 2014/1832, which was made under subsection (2)(b). No other order has been made under that subsection.

(6)

Section 81D was inserted by the Financial Services Act 2012, section 100(5); and was amended by the Financial Services (Banking Reform) Act 2013, Schedule 2, paragraphs 1 and 7(3), and by S.I. 2014/3329.

(7)

Section 6B was inserted by S.I. 2014/3329.